Monday, 23 February 2009

Possibly the only post about file-sharing

I don’t usually feel compelled to post about file-sharing or P2P. Not that I don’t think it’s a serious issue, of course it is. It’s just that I personally haven’t worked closely in that area for a while and that actually feels good. The whole business of file-sharing is a largely negative vibe. When working on legal music strategies & product development, the choice until now has been to work around file-sharing, or just live with it. Since I lived and breathed piracy in my years at a music trade body, it’s been good to get away from it. But a few recent developments have brought the subject back to the forefront of my mind:

1. The Pirate Bay trial.
2. Legal ad-funded streaming.
3. ISPs & music.
4. Digital Britain (the interim report).

I’m not tracking the Pirate Bay trial in great detail, but safe to say the outcome of it will be critical for music, technology and creative business in general. What struck me about the trial hasn’t been the outlandish statements and stance made by the Pirate Bay (are these guys really attempting to position themselves as crusaders against copyright to the wider benefit of creators, consumers and society? How can they be allowed to gain traction with that?).

No, what struck me was the statement by Bjorn Ulvaeus, from ABBA, on the Swedish website Newsmill. He slammed The Pirate Bay for giving users "the ''freedom'' to be lazy and mean" (these are the things trade bodies find it awkward to say for obvious reasons). Bjorn concluded: "Is it really so damn difficult to pay your way?"

I liked the economy and authenticity of this latter statement. Because in the end, the higher-ground arguments used by file-sharers and their facilitators – brought to a head by the TPB trial, have never held up, to my mind. Sure, you might not ‘agree’ with the way an industry is commercially and legally structured but does that give you a divine right to undermine it just because technology means you can?

If you think yes, then at least expect someone to try & stop you. If the current generation of tech-savvy freedom fighters want to be remembered for attempting to bring down the copyright industries rather than being anti-war, pro-environment, or existentially fulfilled then that’s up to them. I expect things will turn out unsuccessfully for them in the end.

The best excuse for file-sharing – the most genuine I suppose – is the sampling argument – which brings me nicely on to point 2 above. It’s quite right that technology is allowed to disrupt the structure of a business every now & then (just not in the manner of 1, above).

It was never really right for us consumers to have to take the risk on an album based on familiarity with one song, or even devoted loyalty to the artist. I’ve wondered what my personal tally is of getting an album purchase right or wrong, from a utility point of view. No idea, probably more wrong than right. But it was always a sinking feeling when you had invested in a piece of music only to concede to yourself on playback that you actually didn’t like it at all – that YOU made the mistake in buying it.

At last, we don’t have to worry about these things. We can now use the ad-funded streaming services and the music social networks to play anything we want as frequently as we want, before deciding if we like it enough to own it. It’s liberating. Indeed we can decide not to own very much music if we prefer to spend time streaming it or ‘socialising’ with it. As a music fan there’s no downside to this, other than maybe trading off some of the ‘deeper’ benefits of really committing, as a listener, to a piece or music or an album – something a lot of consumers really don’t mind about (and some – though not you, reader of course - might not even know what I’m talking about here!).

The development of legal ad-funded music services and music social networking, impacts directly on the need for file-sharing services. File-sharers agree with me on this. Over 60% of file-sharers also use legal & free music services, with over half of them now believing this reduces their need to illegally file-share. These stats come from the 2008 UK study by Entertainment Media Research and Wiggin.

As these services grow, music consumption shifts from the current dominant pattern of ownership, to one of access & discovery. This makes perfect sense given the changes in music supply and distribution. The only critical issues for music producers is that music streaming and social networking are allowed to thrive in a way that makes sense for the business economically. The latter point is hugely complex of course. Spotify has the momentum, but does it have the commercial model? I hope so, because to build momentum in the way Spotify has is a great achievement.

The subject of commercial models brings me to point 3 in my opening paragraph – the ISPs. Spotify might argue that it now has enough momentum to go it alone as a consumer brand. It would have been one hugely, insightfully smart ISP though, that might have approached Spotify a year ago with a partnership or acquisition in mind. For the ISP’s have what the innovative, insight-based start ups do not: a customer base (with a billing relationship); brand equity; financial muscle, etc. etc.

With the trade bodies shifting anti-piracy strategy away from consumers to their ISP gatekeepers (somewhat successfully) it only seems fair for the industry to offer a contra – namely to assist ISPs to develop valid alternatives to pirate services.

No one is saying it will be easy. ISPs of course have a set of issues all of their own that are comparable to the woes of music suppliers. And a whole stack of searching questions for those suppliers: why big advances for non-exclusive licenses? What can you tell us about your customers? Will they pay for (digital) music at any price? Will the Government help? (And those questions are before the really big ones like ‘What music service will we offer?’).

With B2B platform services now developing in the space (7 Digital and Omnifone are marketing music provision services to ISPs and Virgin Media was/is in discussions with Playlouder), there are vehicles emerging for ISPs to enter the music market in more effective, dynamic ways than they did at the turn of the century. Yes, music is an expensive licensing proposition – and an even bigger marketing commitment. But what the ISPs need to keep in mind from the get-go is the actual size of the market opportunity in music. Music piracy may not need any additional PR, but legal music sure does.

It may be that file-sharers account for 95% of music downloads as the IFPI says in its recent (and ever superb a resource) Digital Music Report. Not an unreasonable estimate as it goes, perhaps, but misleadingly scary. File-sharers binge on songs and don’t listen to half of what they download.

The EMR/Wiggin survey mentioned earlier reports that 2 in 5 ‘online music consumers’ have used a file-sharing service – ever. So from a consumer viewpoint, digital music is a 60% legal market. Break this down by demographic: for the over 24’s, online music consumers are three-quarters legal. This is the ISP’s core market – mom & pop, basically – the folks who pay for access. Even among the under 24’s, half don’t file share. And this is ‘ever’ – regular, habitual use of file-sharing networks is lower – more like one in five online users across Europe overall according to historical tracking by Jupiter (now Forrester).

If those stats were describing a disease, then sure, we would have an epidemic on our hands. But as a social trend, file-sharing isn’t quite as main-stream as its presence in the media can sometimes suggest (at least not among the ISP core paying audience). With cooperation between ISPs, the industry and yes probably, Government, it’s also containable.

I didn’t think the Government (I’m on point 4 now) should get involved before, but now I do, because of The Pirate Bay. If these jokers want to escalate the debate to a sociological level, the Swedish Government has no choice but to get involved anyhow (besides, one could hardly argue that music piracy hasn’t devastated the legal business in Sweden). In the USA, the debate is almost as fanatical and the impact on the market almost as detrimental, so it will be interesting to see if the new administration gets more directly involved in internet regulation.

Meanwhile in the UK we have continued Government support of our splendid Creative Britain. With the mainstreaming of the creative industries key to the UK’s economic future, it seems logical that UK Government wants to do all it can to ‘smooth the path’ for commercial deals to take place between music (and crucially, all creative industry) providers and ISPs.

Specifically (if you can call it that) with Digital Britain Action 11, the UK Government wants to establish a Rights Agency to help facilitate a ‘‘win/win/win’ for rights holders, intermediaries and consumers’. It’s typically vague but at least well-timed. Now is the time for Governments to facilitate a step-up in counter-piracy at the same time as maintaining a focus on incentives to innovate, helping to direct producers and ISPs to solutions that they may naturally, initially resist.

But solutions are quite close already, so it’s even more critical for Government not to confuse or slow down current progress with non-specific strategies.


Eric Larson said...

The problem with ISP getting involved in content is that there then becomes a liability on both a technical and legal level that seems to negate the potential revenue. Filtering content at an ISP level would be very complicated. They work with packets, not pages, so analyzing packets across an entire network at an ISP is far from trivial. Also, the nature of the web doesn't easily allow for reconstructing data within the course of a request. The web works by broadcasting packets and letting listener pick up the important facets. An ISP would have to listen for everything in order to verify content and deny/allow anything.

This kind of monitoring would require some kind of storage since handling the content couldn't be done in real time. If it gets stored, then when someone comes looking for a law suit, there is a good chance that temporary storage would need to be a little more persistent. The result is that ISP might be forced to keep better records than they intended.

I'd imagine a customer paying $5 and having unlimited access to some library of music. $5 dollars (for example) doesn't allow much wiggle room for maintaining such an extensive infrastructure profitably. I'm not saying it wouldn't be nice, but personally, I rather stick to other services in order to make sure my connection stays clean. In other words, I'm paying for the connection and how I use it is my own business.

Keith Jopling said...

Thanks Eric
Fascinating points from both the technology, economic and user preference point of view