Digital media will force the entertainment industry to rethink current business models and perhaps usher in a special tax to compensate artists deprived of revenue from Internet media distribution, according to panelists at a conference Thursday.
The Berkman Center for Internet and Society at Harvard University and research firm Gartner assembled a group of legal, media and technology experts to discuss potential scenarios for overhauling the media and entertainment industries to accommodate rapid changes in technology.
Attendees at the conference, held at the Harvard Law School in Cambridge, Mass., posed a number of scenarios to achieve the goal of extending consumer access to media through digital devices while respecting the copyrights of content creators and publishers. Talk focused primarily on the highly visible and controversial practice of downloading music over the Internet, but it touched on all types of electronic media.
Overall, attendees agreed that the entertainment industry has been slow to develop viable business models for the Internet. Meanwhile, unauthorized distribution of content on file-sharing networks such as Kazaa and Morpheus has become commonplace.
"The legal and regulatory environment and the business models have not been able to keep up with this situation," said James Brancheau, a media analyst at Gartner. "This is a massive problem today."
The conference took place as the major record labels filed their first wave of lawsuits against alleged file swappers in a bid to stem peer-to-peer Internet piracy amid a global drop in music sales. The industry has painted the tactic as a last resort following an unprecedented period of unauthorized copying touched off by the advent of the Napster file-swapping service.
The suits offer the clearest indication yet that the industry is in crisis, a situation that some conference attendees said could open the door to unconventional solutions.
A license to play
One of the more bold ideas put forth to address the situation is the notion of a compulsory license. Much discussed in policy circles, but bitterly opposed by the politically powerful record companies and Hollywood studios, a compulsory license system would create a pool of money that would be paid out to content creators based on how often their songs or movies were downloaded. The money could come from a tax on downloaded media, bandwidth or the sale of media devices. It could even be a voluntary system, proponents said.
The advantage, from a consumer's point of view, is that a compulsory license system would give a consumer the right to make copies of electronic media without restrictions, although it would mean slightly higher Internet service provider fees or consumer electronics fees. However, a change of copyright laws to accommodate compulsory licensing would likely mean a substantial drop in revenue for content owners such as record companies and music studios in the short term, according to a Berkman Center white paper.
Still, the radical changes now going on in consumers' listening habits should motivate the recording industry to explore compulsory licensing, said Walter McDonough, general counsel of the non-profit educational organization the Future of Music Coalition. Revenue from music sales in the United States fell 14 percent between 1999 and 2002, according to the Record Industry Association of America (RIAA). It blames the drop largely on the unauthorized downloading of music. Others cite additional factors, including the economic downturn and increased competition from alternative entertainment sources such as DVDs and video games.
"The record companies are becoming more like licensing companies rather than companies that manufacture disks. It will be a sustainable business model," McDonough said. "(But) we do need a process to determine what the rate (of the tax) is."
Indeed, detractors argued that setting a fair price for digital entertainment is extremely difficult and that the presence of regulators would make the market less efficient. Also, establishing a system and prices that would work for artists and production companies worldwide would be very complex.
Technology, in the form of digital rights management, could also shake up today's entertainment industry.
Digital rights management (DRM) gives the content publishers the ability to dictate how an audio or video file will be used. For example, Apple Computer's iTunes music downloading service places restrictions on how many copies can be made of a certain song.
IBM next month is expected to announce its first major customer for its extensible Content Protection (xCP) technology design, which allows a person to use the same content on a variety of home-network devices. Microsoft, too, has spent years and millions of dollars developing its Windows Media digital rights management technology, and ensuring that it is supported by a wide range of devices and services.
But DRM, too, has its faults, conference attendees said. Encryption methods can usually be hacked and exploited by consumers who want free content, detractors said. Representatives from the Electronic Freedom Foundation also said that DRM technology could be easily abused and invade an individual's privacy.
"Today's digital rights management can easily become tomorrow's political rights management," said John Perry Barlow, a musician and co-founder of the Electronic Freedom Foundation. "The same system that we are increasingly putting in place allowing the record industry to survey your hard disk would allow the government to survey your hard disk with a different purpose."
A representative from Microsoft said that DRM technology does not give content creators the right to inspect a consumer's hard drive. He defined DRM as a system to attach usage rules on content distributed electronically and the security to enforce them.
Another scenario discussed to accelerate legal electronic distribution of digital media at the conference was stricter enforcement of existing laws, particularly the Digital Millennium Copyright Act. The most recent example of the litigation by the recording industry is the 261 lawsuits that the RIAA filed against individuals who were illegally distributing music on peer-to-peer networks.
In an interview with CNET News.com, RIAA President Cary Sherman said that the suits were intended to raise the awareness of the legal dangers in sharing music online and to change the prevailing culture of file swappers.
In addition to its legal moves, the recording industry is dabbling with digital distribution models. On top of Apple's iTunes service, Rhapsody is expected to introduce a pay-per-song music download service like Apple's iTunes next year, and electronics and media giant Sony is readying an entry into online music, Gartner's Brancheau said.
It's in the interest of the entertainment industry to find ways to make money with digital media in order to maintain its traditional role of finding musicians, recording them, promoting them and so on, Brancheau said. The Internet also radically cuts down on the cost of distribution, opening up opportunities for smaller artists to reach their audiences directly, conference attendees said.
With so many questions about regulations, business models, consumer behavior and technology, reaching the goal of greater consumer enjoyment and a vibrant media industry will take several years, attendees said.
"I liken this era to an age of experimentation," Brancheau said. "Some hybrid (of proposed models) will emerge. Nobody knows the right formula."