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Dust-Up: Should the entertainment industry accept piracy as a cost of doing business? [Round 2]

Piracy-ComputerIn the first installment of our piracy Dust-Up, Harold Feld, legal director of Public Knowledge, and Andrew Keen, advisor to Arts and Labs, debated how big a risk piracy poses to the entertainment industry. Voicing the opinion of many Internet users and online entrepreneurs, Feld said it was time for the industry to adapt. Keen disagreed and argued for more legal protection,  not just for Hollywood but for the independent filmmakers and copyright holders who'll be driven away if piracy continues.

Today they face off on whether piracy should be accepted as a cost of doing business.

Says Feld:

[L]earning to accept some losses as a cost of doing business, just as retailers do with shoplifting, opens up doors to billions of dollars in new sales. Crushing Napster didn’t help the music industry, but embracing iTunes did.

Says Keen:

No, nothing -- especially complex legislation over a subject as controversial as online intellectual property -- is ever perfect. But, as a legal scholar, Harold knows better than me that man-made laws are, by definition, imperfect. Yet that shouldn't mean that we surrender to the online thieves by treating piracy as a "cost of doing business" and simply write off the billions of dollars lost every year to the American entertainment industry as an unavoidable misfortune, like a plague of locusts or that proverbial bolt of lightning from the heavens.

Continue reading round 2 of their debate after the jump.

In case you missed it: How big a risk does piracy pose to the entertainment industry? [Round 1]

Check back Thursday: What's the true impact of illegal downloading on jobs and the arts? [Round 3]

--Alexandra Le Tellier

Photo: Fernando Capristan and Elena Campillo use links through websites at Emule and RapidShare to download movies in Spain. Credit: Angel Navarrete


Anyone who has had the misfortune to have their home or apartment burgled will understand Andrew's demand from Tuesday's first installment of Dust-Up. It boils down to: "But why doesn’t somebody do something? Where are the police? Why don’t we have tougher laws or security cameras all over the place?" And though no one likes to hear in response, "Well, we try our best, but you ought to consider getting a better lock and a burglar alarm," sometimes that is the best answer, or at least part of the answer.

In 1998 we adopted a law called the Digital Millennium Copyright Act, or DMCA, to deal with illegal downloads and illegal file swapping. Mind you, that’s in addition to the Copyright Act, which already makes illegal copying a crime subject to $150,000 in damages per violation. The DMCA imposes a number of duties on those operating websites or providing internet access service to help copyright holders. It's not a perfect system from anybody's perspective. Critics note that it imposes substantial costs on honest service providers, that unscrupulous businesses use the law to suppress critics with bogus claims of copyright or trademark infringement, and that a cottage industry has developed among bounty-hunting law firms to threaten questionable lawsuits as a means of extorting "settlements" that are little better than shakedowns. At the same time, it has hardly put an end to illegal downloads. Nevertheless, for all its flaws, the DMCA provides a workable framework that gives copyright holders tools to work with while giving those accused of illegal downloads a chance to defend themselves.

So, as with real-world shoplifting, we have a workable legal framework. It's not perfect, but it recognizes the difference between the online world and the physical world and tries to create a balanced response. Though it's not surprising that those who see their movies or music illegally downloaded want more -- no one likes being robbed -- we need to consider very carefully both how much changes in the law cost everybody else and just how effective the changes will really be. In the mid-1990s, Californians outraged by high-profile violent crimes passed a "three strikes" law to give felons life sentences after a third felony conviction. Proponents of the law dismissed concerns about how the state would pay for the increase in the prison population as being "soft on crime." As California lawmakers now struggle with cutting education programs and state services to fund its ever-growing and graying prison population, it's fair to ask whether critics concerned about the cost were soft on crime or right on the money.

People often have the same problem recognizing the cost of increased copyright enforcement online. For example, last year when Britain adopted a copyright "three strikes" policy of the kind Hollywood has urged we adopt here, the government estimated it would cost Internet service providers 500 million pounds ($801 million) in new costs that they would pass on directly to subscribers. Closer to home, as a result of a law passed in 2008, cash-strapped colleges and universities are now spending tens of thousands of dollars every year trying to stop students from illegally trading music and movies -- all without noticeable effect.

That these costs are hidden make them no less real. It’s easy to understand 9 million illegal downloads of "The Social Network," and hard to understand how the new regulations Sony wants will raise the price of your broadband subscription and your iPod while keeping you from doing cool things on your iPhone.  As the crowning insult, there is no evidence that these new rules would actually make a dent in the illegal downloading problem, or that marginally reducing illegal downloads would translate into an increase in legal sales. What evidence there is seems to indicate the opposite. All that these new government regulations and associated costs end up doing is making it harder for honest people to buy movies legally.

On the other hand, learning to accept some losses as a cost of doing business, just as retailers do with shoplifting, opens up doors to billions of dollars in new sales. Crushing Napster didn’t help the music industry, but embracing iTunes did. "The Social Network" was illegally downloaded 9 million times, but it still made Sony more than $200 million at the box office. It is not somehow insulting or justifying theft to ask: "Do you and I really need to pay more for broadband to solve this problem? Isn’t it as much a cost of doing business as shoplifting?"

No one robbed likes to hear "get a burglar alarm"; no one who runs a store likes losing money to "the five fingered discount"; and no one seeing their work illegally downloaded likes to hear "some illegal downloading is a cost of doing business." But at the same time, we cannot keep financing "the war on digital piracy" with higher prices on broadband and electronic goods because "something must be done."

--Harold Feld

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


Excuses, excuses. Harold acknowledges that online theft is a "misfortune" but argues that any policing solution is worse than the problem itself.

You see, for every initiative to stem piracy, Harold seems to have a convenient excuse. The Digital Millennium Copyright Act has, supposedly, imposed costs on Internet service providers that have, in turn, driven up the price of the Internet for all of us. Or the British-style three-strikes policy will, he says, drive up the price of college and undermine innovation in American media companies. While the new regulations against online theft favored by Sony will, Harold warns, add to the price of the iPod and diminish the iPhone experience. And then, he tells us, absurdity of absurdities, that government regulations against online theft will make it "harder for honest people to buy movies legally."

Excuses, excuses. I wonder if, had Harold been around in the early 19th century, he might have argued against financing a professional police force or public jails because they would increase taxes and, horror of horrors, "cost" the consumer some added expense.

When, I wonder, will Harold think about the online consumer as a citizen and begin to imagine Internet laws in terms of civic responsibilities rather than just the right to cheap services? Rather than worrying about doing "cool things on our iPod," shouldn’t we instead be trying to craft legislation guaranteeing that 21st century artists have the opportunity to make a living selling their books, their recorded music and their movies?

No, nothing -- especially complex legislation over a subject as controversial as online intellectual property -- is ever perfect. But, as a legal scholar, Harold knows better than me that man-made laws are, by definition, imperfect. Yet that shouldn't mean that we surrender to the online thieves by treating piracy as a "cost of doing business" and simply write off the billions of dollars lost every year to the American entertainment industry as an unavoidable misfortune, like a plague of locusts or that proverbial bolt of lightning from the heavens.

Using Harold’s negative logic, could we also turn a blind eye to online financial fraud or breaches of online privacy as "costs of doing business"? Yes, I’m exaggerating, of course. But I want to press Howard on positive solutions rather than just excuses for why things won't work. I want to know if he is against all new laws to confront online theft or just some laws.

Harold, what kind of anti-piracy legislation could you conceivably support?

I'm curious, for example, about your opinion of Sens. Orrin Hatch and Patrick Leahy’s Combating Online Infringement and Counterfeits Act, or COICA -- a bill that enables government to shut down websites if copyright theft is deemed "central to the activity" of the site. Rather than going after little old ladies "guilty" of shoplifting the odd song with excessive fines, COICA seeks to shutter businesses designed exclusively around the illegal distribution of intellectual content. COICA, it seems to me, could act as our collective burglar alarm against online theft.

COICA, you see, goes after companies whose whole business model is based on what you call the "five fingered discount." These are the bad guys, the peer-to-peer networks and the illegal streaming sites whose very raison d’être, their whole purpose of being, is to aid and abet the illegal exchange of other people's intellectual property.

So, Harold, what's not to like about COICA?

--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 (16)

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The losses reported, millions, bazillions, are not real. Downloaders are people who, for the most part, would never buy the movie or music anyway. Some losses, yes, but to calculate that every download costs the studio/artist X dollars, probably full retail, is foolish. It makes the problem seem a lot bigger than it is, and that, I guess, is the point. Much ado about nothing. Are the studios hurting? Are musicians starving? They want more money? Greed, is what it is. And as long as it's perceived as greed, they'll get little sympathy. And, in any case, were the downloading to cease entirely, it would have not the slightest impact whatsoever on studio or musician incomes. That goes equally for software.


Are you telling me that all those college students protesting tuition increases and cuts to services are thieves? Well tell me something I didn't already know. I guess its okay to steal from a successful company just don't "steal" an entitlement from an unemployed student who doesn't pay any taxes.

Joel Sage

As I discuss over on my blog Legally Sociable (http://legallysociable.com/2011/03/16/la-piracy-debate/), here’s the thing that I don’t understand: in 2006, Keen accused Larry Lessig of being “an intellectual property communist” (http://www.weeklystandard.com/Content/Public/Articles/000/000/006/714fjczq.asp?nopager=1). Yet if I understand this debate correctly, it is Keen who wants to focus on ways of “guaranteeing that 21st century artists have the opportunity to make a living” and who unconcerned whether or not people can do “cool things on [their] iPod[s]“.

Last time I checked, “guaranteeing” certain people paychecks is strongly associated with communism. It is innovation of the sort that allows people to “do cool things on [their] iPod[s]” that smacks of the capitalism Keen so implicitly embraces.

Keen will no doubt object that I mis-characterize his view insofar as he “only” seeks opportunity, not outcome. This objection is fair enough — so far as it goes. But it’s a tricky objection to maintain credibly when it is your opponent (here, Feld) who is calling for balance and proportionality in infringement penalties and you (Keen) who is engaging in the take-no-prisoners logic that “we surrender to the online thieves by treating piracy as a ‘cost of doing business’”.

Mr. Keen, accepting business loses due to shoplifting (in the physical realm) or piracy (in the digital realm) is not “surrender”; it is a fundamental recognition of reality. Failure to recognize this reality seriously undermines your argument — as does your claim that you only seek “opportunity” when you so clearly will be satisfied only by enactment of one particular outcome.


Andrew came perilously close to trolling in that post, and managed to completely miss Harold's point in the process. The point was not that we shouldn't be doing something about piracy - in fact, Harold said that the abominable DMCA is the place to start. It was that at some point, you have to accept that you're not going to be able to clamp down on every violation of the law without unpleasant side-effects on society.

Moreover, we see the law adjust to the reality on the ground all the time throughout history. If you look at the history of "squatters' rights", for example, at a certain point the US government decided that it simply wasn't cost-effective and just to keep trying to stamp out squatters, particularly if they were creating value in the process. So instead they tried to accommodate them legally while still protecting property rights.


I think legitimately people are going to get info off computers. I think you have to take this as a fact and adjust prices. CD's and DVD's for example can't compete anymore. And really they never even tried to adjust prices, or modify the product to cut costs for the consumer. So they are becoming outdated and stores are closing their doors. Legitimately yes, there has to be a shift in the products to continue selling now.


People know it is illegal, but many do not believe it is morally wrong. The punishment should fit the crime. Too often in California, the state of higher incarceration, we send people to prison for years, costing us dearly, when an alternatve punishment or shorter sentence is actually called for.

FOLLOW THE MONEY. Who profits from failed criminal justice and horrifically overcrowded prisons that are bankrupting states across the nation?

District attorneys and prosecutors who are promoted for winning cases and harsh sentences at any cost; Tough-on-crime scare tactic politicians hoping for votes; Guard employee unions; For-profit-contract-bed-privatized-corporation prisons; Parole department in California where everyone released is on parole; The bail bond industry that benefits from unnecessary criminal justice practices that increase incarceration; The list goes on.....

Joly MacFie

Gates, once questioned about piracy, said "At least it's our stuff they are pirating - it's up to us to figure out how to best capitalize on that." or words to that effect. I think many will recall that illustrative diagram a few years back about the comparative value to consumers of pirated vs official content. Until the official content gives better value, it's a losing game regardless - and, as Harold rightly points out an expensive one. Jobs made it easier to pay than to pirate and laughed all the way to the bank. We too can laugh in a world where, on the one hand one sees marketers pulling all the plugs to make things go viral, while on the other doing their best to prevent it.


Mr. Keen, all I hear from you are personal attacks against Mr. Feld. That is a sign of weakness in your argument and makes it difficult to hear anything you say.

Consumers know from personal experience that big companies screw them over every day, simply because they can. They know that the entertainment industry is run by people who make money by stealing ideas and not paying artists and workers--producers make money by not spending it. Distributors make money by unfairly controlling a market.

People see large corporations buying Congress to get what they want, regardless of the negative impact on society. For example, why am I only now, in 2011, getting high-bandwidth internet in my silver lake neighborhood? Why did I have only one provider (Time Warner) for years who charged me nearly $50 a month for a slow, pathetic cable modem? Now that there is competition from AT&T, the price is $25.

I will and do pay for my music and movies and television. That is fair. As an entertainment industry worker, I see the greed that distorts and destroys honest behavior. Steve Jobs saw that if you can get the consumer what he really wants, a song or show at a reasonable price, you can make a crap load MORE of money, in new markets.

There is a tremendous distortion in the market of ideas, induced by the media corporations, not Penelope Spheris (who hopefully is not making any more of her awful supposed comedies). File sharing/illegal downloads are the symptoms, not the cause.


Well... I'll have to agree with Andrew Keen on this one. Money or no money, the internet is a huge part of our lives and the law need to catch up. I don't think we are even close!


Illegal downloading is not simple shoplifting, which only accounts for around
5% of losses. It is online looting where everything that is not tied down is stolen.

Illegal downloading is a market failure and without the establishment of secure property rights no one is going to produce the product anymore.

I know because I am a professional songwriter and I am not wasting my time
anymore.... let the thieves write their own songs!


DHS shut down 80,000 websites under a move just like that which COICA would even further legitimize. Andrew Keen is absolutely hilarious! This is the innocent legislation he expects Harold to support?


Luis Guillermo

The DMCA is a joke, a bad one. The YouTube, Bloggers, Google Video, Myxer, etc of the world don't have any obligation or responsibility to make sure that the users are not uploading material that infringes somebody copyright and the burden of doing the "police work" is on the owner of the copyright.
Is an impossible task, because you place them in notice (the take down notice) at the same time that somebody else is uploading it again, the never ending story.
In the meantime those companies keep making advertisement money with infringers.
If the above mentioned companies do what they are supposed to do, internet piracy and/or unlawful use of copyrighted material on the internet can be controlled, but they do not want to do it. They do not care !!!


Can't wait for COICA! Bring it on! Shut the thieving vampires down! All you theft rationizers who think you're entitled to other people's labor need to learn how to think. You have already parasitized your own generation -- there is now, thanks to thieving, no career left for talented, trained young musicians to go into anymore unless it's classical performance. Without professional musicians (who you seem to despise for their skill and talent), music becomes lamely amateur. The only folks who will make music will be kids in their parents' cellar (until they have to go make a living) or the independently wealthy who do not need for you to like their output. An amateur, dilettante culture is the ultimate result, yet you can't see that far.

I can tell you rationalizers that the thieving is destroying artists. Perhaps that makes you happy out of a perverse sense of jealousy that refuses to acknowledge that art is HARD WORK and if you had wanted to do it, you needed to start at age 6 and spent your life working your tail off making beautiful music well. Clearly, that was not a choice you made. So you hate others who did? But still want to steal their work? What's up with that? How sick is that? Mirror mirror on the wall...

Feld is an outright ninnyhammer when he says there are mechanisms to deal with piracy right now. Clearly, he's not one whose intellectual property is popular on the piracy sites. Ours is, and just trying to send out 34,000 takedown notices when each site has totally different requirements -- making you jump through entirely different and unreasonable hoops before they still don't take them down makes it amply clear that real government action is required. Shut 'em down! Until there's a mechanism whereby each and every file that is transferred on the internet is paid for by the user via the ISPs or some other mechanism, shutting these crooks down is the only option. SAVE CULTURE! SUPPORT THE ARTS!

It's so amusing how put out these kids are about not being able to have everything they want. Humans did just fine in the old days of going into a record store and buying a disc. Nobody complained. Artists got paid (more or less). Culture flourished. But now the "fans" are more greedy and vicious to the artist than the record companies ever were.


Yes, profits arent as high as they were in the halcyon days of 1999 when music wasnt so readily available on the internet, but the music industry's claim that they are going out of business because of illegal downloading is not sound.

Here is why:

1. They claim they are losing money. But they are not losing money, they did 6.3 billion in sales (this is US companies) in 2009. Losing money is defined as spending money or having that money being taken away. For example, I bought a stock for $10, sold it for $5. I just loss 5 dollars, becuase that is money I once had that I no longer have nor it's equivalent in value. Instead, the music industry is not making as much profit as they use to and claiming they have a right to the money they thought they should have had. That is like selling lemonade, making $5, then getting mad because you expected to make $10. So the music industry isnt losing money, they just arent making as much as they use to nor expect to.

2. The music industry has blamed their decline in profits on the rise of illegal downloading. It is true that as downloading has increased over this period of time, profits have decreased over that same period, but it is not true that X drives Y. It is a mathematical fact that if we have 2 variables X and Y that are correlated, there are 3 possible reasons why. X drives Y, Y drives X, OR X and Y dont drive each other but are both driven by another variable Z. So it seems that profits and downloads are correlated but it DOES not mean that profits are down BECAUSE profits are up. We cant assume profits are down because downloads are up for a couple of reasons. One, we dont know if the people who illegally downloaded the content would have purchased the content if they couldnt download it. I saw the boot leg copy of dance flick, but if that bootleg wasnt there, beleive me, I wouldnt have seen it. Two, we dont know if the people who illegally downloaded the content didnt purchase the content also. I have d/led albums and loved them so much that I went and bought it. Finally, the msuic industry acts as if purchasing albums exists in a vacuum and is the only reason why profits went down. Let us see...what happened during the 2000s that might have made people less keen to make unnecessary purchases like $15 for a CD with only 3 good songs on it? Hmm...oh yeah! There's the rising cost of energy and fuel when the price of oil went soaring. There's the increase in debt to income for the average family. There's the housing crisis. The rise of unemployment. And finally, the financial crisis. So maybe, just maybe these things factored in to cause people to spend less on music regardless of illegal downloads.

(Please note I did not include societal reprioritization such as the social effects of 9/11, financial crisis, and 2 recessions in that decade. NOR did I factor in the increasing dissatisfaction the average consumer has with the music industry in particular.)

Conclusion: The music industry needs to be quiet. First off they are still making profit, Billions of dollars of profit. 2nd show me defintive proof that this huge fall in profits is MOSTLY to blame on illegal downloads. Until then, Andy Keen, please stop showing your inability to grasp logical arguments nor apply reason to an argument.


@ Quintin:
If you were actually in the business and working it every day, you'd know what utter nonsense you're talking. And the fatigued argument about buying an album for $15 with only 3 great tunes on it was made obsolete by iTunes years ago. Where you been? If you like the 3 tunes so much that you have to have them, what's so onerous about $3? Especially when it helps the maker of that music make some more music that you very likely will like? Ever heard of enlightened self-interest?

All that great indie music that gives the music landscape spice? Say bye bye! As the number of downloads has increased, precisely in parallel, the number of professional musicians able to make a living has decreased. All your rhetoric is hogwash and pure rationalization for the worst sort of theft -- the theft of the livelihoods of people whose work you want. How sick can you get?


If your car is stolen, don't bother to report it to the police or your insurance company. Just accept it as the cost of living in Los Angeles. Same thing goes if your house gets broken into or you get mugged. Just sit back and accept it. Really. It's no big deal.



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