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Dust-Up: How big a risk does piracy pose to the entertainment industry? [Round 1]

Piracy-Social Network

Will illegal downloading drive independent filmmakers and, eventually, the entertainment industry out of business? Absolutely, says Andrew Keen, the author of the upcoming "Digital Vertigo: An Anti-Social Manifesto" and the advisor to Arts and Labs, a coalition of entertainment and technology companies and some of their leading tech-industry partners. Not only is piracy crippling the industry as a whole, Keen contends, but it's hurting the little guy, the artists; and he's worried that without stricter laws, piracy will eventually drive away independent filmmakers because they can no longer afford to tell the important stories that help to influence our culture.

On the other side of the debate is Harold Feld, legal director of Public Knowledge, a Washington-based advocacy group that frequently opposes the entertainment industry on copyright issues. Speaking for many Internet users and online entrepreneurs, Feld argues that the entertainment industry ought to accept the new reality and adapt.

Says Feld:

When Hollywood loses touch with reality this badly (and when Washington follows), it is time for a reality check. Is digital shoplifting really so much a threat to the very survival of the entertainment industry that we need to place the stability of the Internet at risk and jeopardize our relationships with our international trading partners in the fight against real piracy?

This week, Feld and Keen face off in our occasional Dust-Up feature, a point/counterpoint debate that'll continue for three consecutive days. In their first exchange, they both offer their version of a reality check. (Read their opening arguments after the jump.)

Check back Wednesday for whether the entertainment industry ought to accept piracy as a cost of doing business; and then again on Thursday when they discuss new laws versus new approaches and the impact of piracy on arts and culture.

--Alexandra Le Tellier

Photo: Piracy is also a problem in China, where these DVDs came from. Credit: Ricardo DeAratanha/Los Angeles Times

 

Point:

Pretty much everyone agrees that while theft is wrong, we treat shoplifters differently than Somali pirates. Despite the fact that retailers lose an estimated $25 million a day to shoplifting, more than $9 billion a year, no one wants mall cops to carry automatic weapons and have them blast into crowds to nail suspected shoplifters. Nor would anyone think much of an argument that we need to strip search every customer on his or her way out of the supermarket because anyone might be shoplifting and how can honest merchants possibly compete against the “five finger discount?”

Unfortunately, this common sense vanishes as soon as we move from the physical shoplifting to illegal digital downloads. In the virtual world, the real but mundane problem of shoplifting undergoes a Hollywood-esque transformation into “piracy,” causing the entertainment industry and folks in Washington to lose all perspective. Consider that Rep. Howard Berman (D-Valley Village) proposed a bill in 2002 to allow record companies to hack into your computer to search for illegal downloads. And how did Berman justify the equivalent of an electronic strip search? “There is no difference between pocketing a CD in a Tower Records and downloading copyrighted songs from Morpheus,” Berman told the crowd of aghast tech executives. “Theft is theft.” True, theft is theft. But I suspect Berman would have objected to an amendment allowing Tower Records to break into your home to recover a stolen CD.

It would be nice to think that nearly 10 years later, with the Internet less mysterious than the waters off the Somali coast, we might see an interest in workable proposals to address the real problem of illegal downloads. Unfortunately, Hollywood and their adoring fans in D.C. still cling to the fantasy that they are fighting the scourge of civilization rather than dealing with mundane digital shoplifters, and proposals reflect this unfortunate frame.

Delusions of grandeur shared by media moguls as heroic defenders against a horde of digital pirates should be harmless. But when Washington takes these seriously, they do serious harm. One bill proposed last year would have required messing with the Internet’s fundamental address system to go after "pirate websites." This drew sharp condemnation from technical organizations that if the bill became law, it would put the stability of the entire global Internet at risk.  Despite these concerns, the bill in question passed the Senate Judiciary Committee and seems likely to be reintroduced again this year. On the international front, the inability to distinguish between real pirates and digital shoplifting nearly derailed the Anti-Counterfeiting Trade Agreement, or ACTA. Despite broad agreement on provisions to coordinate international enforcement against real pirates with warehouses full of fake medicines and counterfeit designer jeans, the U.S. held out for months trying to force through highly controversial provisions designed to stop 17-year-olds from downloading Justin Bieber singles.

When Hollywood loses touch with reality this badly (and when Washington follows), it is time for a reality check. Is digital shoplifting really so much a threat to the very survival of the entertainment industry that we need to place the stability of the Internet at risk and jeopardize our relationships with our international trading partners in the fight against real piracy?

Measuring losses from digital "piracy" has proved rather difficult, as most studies (sponsored oddly enough by the entertainment industry) usually start with the assumption that everyone who downloaded an illegal copy would have otherwise bought a copy at full price. But evidence suggests that annual losses to Hollywood from illegal downloading do not even begin to approach the losses that American merchants routinely suffer from shoplifting.  Recently, the Motion Picture Assn. of America announced another record year of profit, earning more than $10 billion in global theater revenue. While it is no doubt true that MPAA members lost some sales to illegal downloads, does anyone really believe they lost another $9 billion in sales from illegal downloads? Yet, American retailers, who lose $9 billion a year to physical shoplifting, somehow manage to survive without treating shoplifters like pirates.

The greatest irony in all of this is that the utter insistence of the entertainment industry on framing this as a struggle for its very survival against global digital pirates is that it prevents any effort to develop sustainable responses that minimize losses and maximize sales. In the real world, merchants take common-sense precautions to fight shoplifting, and we punish shoplifters in a manner commensurate with their crime. But rather than try to figure out the digital equivalent of security cameras and mall cops, Hollywood and its enablers insist that critics are "in cahoots with powerful interests" bent on destroying their business and who "simply don’t want to pay" for content.

--Harold Feld

Harold Feld is legal director of Public Knowledge, a Washington-based digital rights advocacy group.


Counterpoint:

With all his “Hollywood-esque” talk of “piracy” in the mysterious waters off the Somali coast, I worry that Harold has been watching too many Johnny Depp movies. Hopefully, at least, he paid for them. Certainly his portrayal of the entertainment industry as made up of people with "delusions of grandeur" who fantasize about themselves as "heroic defenders against a horde of digital pirates" is highly fictionalized. It might make an entertaining movie (who would play the Weinstein brothers?), but it bears little relationship to the real world.

The truth about how entertainment professionals fight online theft is much more mundane than the swashbuckling adventures of Somali pirates. Take, for example, Penelope Spheeris’ struggle to fight the digital theft of her work. Managing online theft is like "putting out a force fire with bare feet," the director ("Wayne’s World," "Little Rascals") told me last month. Especially since many of the online thieves she confronts on the Internet are abusive, calling her a "bourgeois capitalist pig" and many less printable insults. One kid responded by telling the film director that he would "beat the snot out of her."

No, not even Johnny Depp, at his most rotten, would threaten to beat the snot out of a lady.

Or take the struggle of the independent film maker Ellen Seidler, the co-producer of the lesbian comedy "And Then Came Lola," a movie funded with her own life savings. As Seidler said last October, the illegal streaming of her film -- in itself bad enough -- seems to be benefiting third-party websites like Google, which are selling advertising off the back of this stolen material.

Larger movies are also victims of the epidemic. According to the monitoring service BayTSP, "The Social Network" has been illegally downloaded 9 million times on P2P networks since its release six months ago. Harold is right is not all those 9 million thieves would have paid for the movie, but he’s wrong to suggest that these millions of pinpricks don’t add up to one giant pain in the behind for the movie industry that is in the business of making money.

Like Harold, I agree that theft is wrong. I also agree that people who steal online content are more like shoplifters than Somali pirates and should be punished accordingly. (I agree: no walking the plank for illegal file-sharers.)

In New Jersey, for example, people who shoplift goods of under $200 in value are liable to punishments of up to six months in jail and fines up to $1,000. While in California, "grand theft," which means shoplifting goods worth more than $400 (that's 25 albums or movies), can punished with up to a year in a state prison.

But the problem, as Harold conveniently ignores, is that online theft is much more difficult to police than shoplifting. As James Madison reminded us long ago, we aren't angels. And that $25 million a day American retailers lose a day to shoplifting would be a daily $25 billion if it was as risk-free to steal from stores as it currently is to illegally download movies or songs on the Internet.

I like Harold's argument about adopting common-sense precautions against online theft. He is right too that the punishment for online property thieves should be commensurate with their crime. But the big question remains unresolved. In an online world where stealing has become so easy that 9 million people have already illegally downloaded "The Social Network," how do we get these millions of normally law-abiding people to stop breaking the law?

-- Andrew Keen

Andrew Keen is the author of the upcoming "Digital Vertigo: An Anti-Social Manifesto." He is also an advisor to Arts and Labs, a coalition of entertainment and technology companies. 

 

Comments () | Archives (23)

The comments to this entry are closed.

IP Lawyer

Harold writes:

"It would be nice to think that nearly 10 years later, with the Internet less mysterious than the waters off the Somali coast, we might see an interest in workable proposals to address the real problem of illegal downloads."

However, to me this has always seemed like a smokescreen, little more than an example of concern trolling. That is, in an attempt to not seem completely unreasonable, Public Knowledge pays lip service to the need for addressing online piracy. However Public Knowledge will then rely on sensationalistic arguments and strawmen to oppose any proposal for actually addressing the problem. The reality is that Public Knowledge doesn't much care for copyright protection and therefore doesn't give a hoot about online piracy. These positions are kept hidden, however, because revealing them would undermine any clout that they might have on the Hill as no serious lawmaker is interested in hearing about such extreme policies.

I would very much like to be proven wrong, though. I would respectfully request that Mr. Feld discuss some "workable" approaches to dealing with online piracy that his organization could get behind. I know, for instance, that Public Knowledge is opposed to secondary liability rules that are designed to go after the services that facilitate online infringement. So too are they opposed to graduated response schemes that would punish repeat infringers by disconnecting or throttling their internet access.

I suspect that Mr. Feld will suggest that rights holders should pursue civil actions against each and every file sharer detected to be engaged in unauthorized file sharing. The fallacy in this position, as Mr. Feld well knows, is that this is literally impossible.

Anatoly Volynets

Both debaters are missing the essential point in the very beginning. Material things do not equal cultural phenomena (ideas as such and those fixed in form), they are of different nature, are driven by different forces, develop under different "laws of nature." When copying of anything is identified as shoplifting it is pure illiteracy, ignorance. It's impossible develop an argument based on so absurd assumption. No statistic in that case can prove anything.

David

@Anatoly Volynets:

Actually, ignoring or failing to realize the fact that art itself has value is, "... pure illiteracy, ignorance." When you pay an artist for a copy of a song they recorded you are never paying for the medium regardless of what that medium is. You are paying them for the years of hard work that went into the song, the experience it creates when you listen to it and the financial investment they have made to bring it to you.

Joe Karaganis

Ok -- speaking as the director of the SSRC Media Piracy project (http://piracy.ssrc.org), this one seems simple to me. If there are harms, let's see the research that demonstrates them. Way too much of this debate hangs on vague gestures toward criminal networks stealing billions from Hollywood without showing any real proof. It is the consensus industry view, at this point, that there is no such thing as a loss where is no prospect of a sale, and this is massively the case in the high piracy emerging markets, where prices are very high and distribution weak. (And please don't point to that MPAA RAND study about organized crime and terrorist links. Where we've been able to examine its case studies, it's very weak.)

The only potentially credible research the MPAA did on this subject was in 2004, but they have refused to release more than a brief summary--either to us (the SSRC), the GAO, or the OECD. This could settle the credibility question rather quickly with respect to their claims in the last 5-6 years. The GAO and OECD inquiries, moreover, were either funded through or mandated by enforcement efforts, so didn't exactly represent hostile audiences. After four years looking at this stuff, we find it very hard to lend credence to much of it. There just isn't enough transparency. And there are enough red flags in what we can unpack to be legitimately skeptical of why things are held back.

For our part, we see a media market shaped by a hugely successful global marketing campaign for Hollywood's goods, accompanied by a very inadequate strategy for meeting the resulting demand in most countries. This begins with high pricing but includes the poverty of the exhibition and distribution channels, licensing practices that sharply restrict the range of available goods, and lingering commitments to elaborate windowing strategies that the internet has simply routed around. All these practices would still rule the day except for the growth of a massive digital media infrastructure with very little available, affordable legal content to fill it. Speaking about theft in this context seems beside the point.

Kat

The rubicon has been crossed for artists. It is now more costly to make an album than the artist gets back in compensation. That means there will be fewer professional recordings, and those that are made will be stripped of costly studio production. We are headed towards an amateur culture.

It is not that our artistic output isn't wanted -- eg., today, there are 34 thousand websites offering torrents of our life's work (19 albums, some Grammy nominated), each site representing tens of thousands of downloads. Do the math. The losses are immense. 98% of all music "consumed" is now stolen.

I find it utterly disconcerting that some would rationalize theft just because it's easy. And that so many would steal just because they can.

We artists are much better than that, always have been. And now, because of thieves, there are ever fewer of us.

Zane

Actually, Grand Theft in California can be charged as either a misdemeanor [1 year in jail maximun] or as a felony that carries up to three years in prison.

Julian

Dear World,

There is no 'LAW' on the Internet. It is a new frontier prime for colonization, as the new world was centuries ago. Whatever 'law' comes to regulate the goings-on of the Internet will depend, much as it did during colonial times, on whomever could boast a preponderance of 'guns, germs, and steel'. In true neo-colonial fashion, the United States will lead the way in this realm. (That is not a compliment...)

Kat

@Julian:
As artist, we welcome the coming of rules on the internet. As of right now, the pirates are killing all that is beautiful, making it gradually cease to exist. Artists must be able to survive by making their art or the art itself suffers gravely. How much music would Bach have been able to write if he had to shoe horses all day to feed his family? Don't kid yourself: art is WORK, hard work (and talent and training are not doled out democratically), and it is a human right to be compensated for your work. Otherwise, it is a slave trade. You may want to go back to the days of anarchy, theft and slavery (what we have now on the net), but I like to live in a milieu of laws regulating the distinctly non-angelic behavior of greedy humans.

ryan

things are changing radically and criminalizing an entire generation is completely counterproductive. new models need to be constructed, new ways of making/distributing music and film need to be envisioned. whether you blame it on "thieves"or simply see it as a natural evolution, the old models of business and distribution do not work, and they cannot work ever again. criminalizing millions and millions of people will not change that. art will not die, music will not die, films will not die, because most culturally relevant artists are not motivated by profit. having said that, they do indeed deserve to be paid for their work. make new models. of course that's challenging, but creativity will ultimately prevail, both in an artistic and business sense.

Kat

@ ryan:

It was not we artists who criminalized an entire generation -- it was the thieves themselves. Just shows what human nature is really like -- ever heard of the biological concept of the "cheater" or the "freeloader"? It is a phenomenon that occurs even in bacteria. In any group of organisms, some do a lot more work than others to promote the welfare of that society. A certain proportion will always take advantage of that labor and skate. However, if that number of freeloaders becomes too large, the entire colony collapses. That is why mechanisms to punish freeloaders are essential to the survival of the whole.

The arts are in a state of collapse and the only thing that can save it is punishing freeloaders. It has already gone on too long.

The solution I would prefer by far is a system whereby funds are collected for the artist automatically for each and every MP3 file transferred on the net, and there are people working on this. I hope they succeed! Our work is not free. We work our tails off for it and spend a lot of money to produce it. And you are seriously mistaken if you think artists can create the same quality of work with a day job. Again, how much music do you think Bach could have written if he had had to shoe horses all day to feed his family? THINK!

ryan

your proposal to "punish the freeloaders" just isn't realistic of feasible, ask the law firm that just dropped thousands of cases in "the hurt locker" suit. as i said, new models need to be constructed, both in business and the arts. our ENTIRE ECONOMY is in a state of collapse, not just the arts.

Dave in NoHo

This whole thing is beginning to sound like rank hypocrisy on the part of the entertainment companies. "Woe is us," they cry, and then do nothing to change the product they market. It seems to me that there are probably electronic locks that the manufacturers of CDs and DVDs could put on their products that would end the "piracy" epidemic. Why don't they? They probably don't want to pay the tech people for them.

or maybe the fact that so much of the piracy happens in China has something to do with it.

ryan

"It seems to me that there are probably electronic locks that the manufacturers of CDs and DVDs could put on their products that would end the "piracy" epidemic. Why don't they?"

there are and they do, but there are programs that get around these protections, so this is not a feasible solution.

Rockin' Roddy

Ten cents a download...a dollar for an album. Try that and see the dent that you put in piracy. You'll sell more and lose less. Make it a quality Flac file, SACD, or even DVD-A and double the price for those who have high end systems to enjoy better sound quality. It could be the model you're looking for. Everyone would benefit, with the more popular artists taking more according to sales volume. Believe me, you will be surprised at how many newer unknowns would outsell your standard pop icon. Greed is what killed the industry. Volume sales can save it.

Kat

@Rockin' Roddy:

You clearly have no idea what is involved in making albums in terms of time and money. The pay scale you propose is entirely unworkable, and the traditional rates are actually reasonable considering the labor and costs. Sure, I'd like gasoline for 10 cents a gallon, too! And my food for free....

It is not the greed of the companies (which has been prodigious, speaking as one who spent 6 years in litigation with one of the majors in order to get our royalties) that is making musical culture collapse -- it is the greed of those who want something for nothing. It is counterproductive even to the freeloaders to kill the goose that laid the golden egg. They want our work enough to steal it but don't understand why we can now no longer afford to make more music for their delectation? What these folks need is enlightened self-interest.

What ever happened to the concept of reciprocation? We create something you like, you want it, you contribute a tiny bit of your money for it. You buy it. That's the way the system works when healthy. It is an arrogant sickness when you want us to work for you for nothing. That's slavery.

I guess the Me Generation cannot yet understand that others need to exist, too.

Eric

It seems to me that online media is still priced in such a way as to avoid undercutting brick and mortar sales. If a CD costs $12 in a store where the sale is used to create physical media, ship merchandise, pay rent, pay employees, run lights and appliances and so on, why does it cost the same to download the album when none of those costs are involved and I pay for the distrubution cost by purchasing internet access? Charge a dime/song and the problem will go away.

Mihira

@ Kat,
Justin Beiber & Rebecca Black found 20+ millions of viewers on a free content providing system and while both found fame ( or infamy) one found the money within a year or so of gaining the fans via the free content distribution system. No doubt the other will follow.
Regardless how good or bad their creative work is (no point in arguing on how good either of these artists are here as thats besides the point), they broke in to the scene with low budget / home made productions so your theory of production costs and there fore unable to sell at 10 cents a download doesn't hold much ground.

Professional music and even movie production is no longer limited to big studios with big budgets as consume electronics and home computer software are available that can rival the quality. Even a House MD episode was entirely shot using consumer range camera and some movies entirely shot on these camera.
There's even competitions held by Nokia for short movies shot using camera phones.
You can see some real creative work by looking at the entries of these competitions.

MikeD

The thing that's most bothered me about the piracy argument is that people don't understand the internet.

Regardless of what safeguards you put on electronic media there are legions of 'hacker' types whose hobby it is to break these safeguards. In short, as long as you're selling DVD's or streaming the movie to your paying consumers, there will be a pirated copy on the internet. That doesn't even include the chinese or koreans, who actually do it as their job. (I'd also like to question that 9 million social network downloads, is that worldwide? Because 9 million illegal downloads worldwide is actually pretty low.)

But frankly, if you could 'rent' the movie for a dollar, most people would do that. It's less hassle and doesn't bring the risk of a computer virus.

As for MP3's, every artist better make sure they have a website and a paypal donate link. While people will download your music, pretty much everyone recognizes they're stealing from you and probably feels bad about it if they actually like your music.

Rick

Piracy is not stealing. It does have the potential to devalue a product though.

The closest example is the Federal Reserve. Since 1913 it has been quietly devaluing our money over the decades, so it costs more to purchase the same goods. Piracy is equivalent to that. It can reduce demand, because the more copies of a product are out there, the less it is "worth" to the individual that wants it. In simple terms, why buy if its out there for free.

What complicates the matter is pricing itself. If you overprice a product, you can encourage piracy. If you charge a very fair price, you suppress piracy. There are many times when pirating a product just isn't worth it when you can go to the department store and pick it up for $2.50 or order it online for $0.99. This is why the iTunes store has been a rousing success.

There are some benefits to piracy, such as rarity. Sometimes media can actually disappear never to be seen again. Piracy encourages copying so there are up to millions of copies "out there", so a media may not ever be lost even if its value has long since been degraded to insignificance. For obscure and rare media this is not a bad thing, because many times people are actually looking for something rare or hard to find and piracy gives incentive for media distributors to keep products available, if it can be proved there is verifiable demand. By observing piracy trends, distributors can determine what is "hot" in the rare media market.

Individual acts of piracy has many facets, some good, some bad. Its nothing like shoplifting or grand theft.

Piracy on a commercial level can be very damaging though, and should be dealt with, because on such a scale it can devalue a new media product into becoming unprofitable to distribute. This is where organized crime comes in, and should be cracked down on with every legal means possible.

Olden Atwoody

Most films I see are worth, more or less, the $2 I pay for the DVD. But then I don't watch a lot of films - 90% of what I see for sale is unappealing garbage.

And who, in their right mind, would go to see a film in a theater?

John Tarver

This conversation has so far omitted the main source of piracy of films - pirated DVD's sold in foreign markets. I am in Peru at the moment and virtually EVERY copy of a Hollywood feature here is pirated. They are sold in markets in every neighborhood and to such an extent that Blockbuster gave up a few years ago and closed its doors. As an employee of the entertainment industry I have seen an entire genre of direct to DVD movies all but vanish in the past several years. In large part this is because rampant DVD piracy has all by destroyed the foreign sales market except for large theatrical features.

Entertainment is one of the few remaining made in the USA exports. The Japanese hardly need to worry that every car the export to the US will be instantly stolen off the lot when it arrives due to a lack of law enforcement. Yet this is exactly what happens to Hollywood product around the globe on a daily basis. It is time for Hollywood to demand copyright enforcement from countries with which we have free trade agreements, like Peru.

Emory Folsom

I had no problems paying the one dollar fee on iTunes until they raised the price based on popularity. So yes, I agree with Rockin' Roddy, greed IS killing the industry. Maybe ten cents is extreme, but for music's sake let's be realistic; a dollar and thirty cents? PLUS tax? Apple is kidding itself. Is it too much to ask to pay a dollar for a song when (typically) a 17 song C.D. costs 12 dollars? I don't think so.

Leonel A Umana

Technology has surpassed the entertainment business model ... fifteen years ago and it has only gotten worse for them since. Then you had to buy a physical product from a local or department store to play a movie or music if ones available and now you can get a digital download of nearly any movie or music right in your own home. The genie is out of the bag and theirs is no way to put it back. The only way for the industry to survive is to deal with this new reality. The goal is not for suppliers to get paid for their product by establish methods but to get paid for the product the consumers want. A economic model must be made that allow for the artist to be paid for easily mass reproduciable media. Till then they will just be trending water, earning profit from a more dwindling base.


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