corrupt the network. Either because no new content is injected in the case of, e.g. file hosting services. Or because the networks which depend on a constant upload from their users (based on BitTorrent technology) become unidirectional providers when users are afraid of lawsuits for uploading content, they only download (leech) and the whole system slows down until it becomes unattractive.
That said, the majors have been remarkably successful defending their interest and dominant position in the market. Much more than deterring users from an illegal activity, it deters users from systems allowing them to discover and consume music outside the the players’ marketing reach (see also The Awl 2012). New models of music distribution could have proven these “dinosaurs” (Lessig 2005) obsolete more than a decade ago. This calls for a reflection on implications for the law.
interests of musicians rather than their agents. New models of music distribution promise to provide at least some income to the artist.75
As a second goal, the legislator should design the legal framework in a way that permits a diverse music production. Here, an economic welfare perspective clearly recommends to break up the current power structure. The majors filter musicians, leaving the music market more homogeneous. Breaking the oligopoly lowers entry barriers for new artists.
More participating artists increase competition in the market. Besides from lowering prices for the consumer, the market becomes more diverse. Recommendation systems make niche music accessible to new demand. Since music is a cultural good, a diverse music supply has an inherent value to society. Of course, stiffer competition can also increase financial pressure on musicians. The issue of adequate compensation for the artists is crucial and requires further research. But since technological progress cannot be stopped, music enthusiasts will continue to share files as long as no attractive legal alternative serves their demand.
Even though new models will attack big player marketing, this does not in any case mean that the majors will disappear completely. It is possible that the market will pluralize such that majors still serve a downscaled mainstream market for less involved consumers whereas independents serve niches music enthusiasts who enjoy a more direct communication with artists (May 2007). Nonetheless, the majors have considerable lob-bying power which they will utilize to secure their profitability, prevalence, and influence (Romer 2002, Lessig 2005: 218).76 The war on file sharing will continue to polarize the public as recent worldwide protests against the multinational treaty Anti-Counterfeiting Trade Agreement (ACTA) showed (see, e.g., WIRED 2012b). Indeed, the legal deci-sion about how tightly the Internet may be monitored to identify copyright violations will affect online privacy and ultimately the Internet as such. Philip Zimmerman’s in-sight that “if privacy is outlawed, only outlaws will have privacy” (Zimmermann 1994) is thought-provoking.
75It should be noted that technology permits to perfectly monitor listening behavior. Thus, the share of the user subscription fees which is reserved for the artists can be distributed exactly according to user listening behavior. Repeated listening to the same song can be inflated to the advantage of artists who are less popular.
76Evidence for lobbying is scarce. However, given the strong monetary incentives for the majors to preserve and extend their business model, there is no doubt that lobbying exists. Some argue that this showed when the EU decided to to harmonize and extend copyright related rights from 50 to 70 years after the year of publication (directive 93/98/EEC now replaced by directive 2006/116/EC).
The official argument was to benefit artists and their bereaved people for two generations. However, experts voiced concerns that only few people gained from this whereas major labels, in most cases the rights holders, expect huge benefits (see, e.g., Littoz-Monnet 2007: 131, or in German language http://irights.info/leistungschutzrechte-an-tonaufnahmen-der-vergessene-skandal/10715, May 8, 2013).
Consequentially, aiming to maximize welfare, new legislation has to pave the way for new business models against the lobbying power of the majors. Since file sharing is a global problem, national solutions have to fall short of the mark. This raises the problem that the need for and efficiency of economies of scale shifts from the majors to new streaming services. These have already entered into international cut-throat competition and it is not only foreseeable but makes economic sense that a new oligopoly might fill this position. This might require oligopoly regulation on an international level.
1.7.2 Regulating the New Gatekeepers?
National collecting societies and performance rights organizations will have to trans-parently distribute royalties to artists according to the play counts of the new models.
In fact, transparency, especially at the licensing and reporting level (Page 2008), is of highest importance for the functioning but also for the legitimacy of new models.77
A central weak point would be to make the monitoring objective while respecting user privacy. It is beyond debate that those agents with enough economic power will do anything to manipulate and corrupt any system to raise exposure of their content. A though-provoking example is how UMG placed its content in the clip rotation of German music television channel VIVA in 2002 and 2003. UMG bought the guarantee to place up to 50 music videos on VIVA, paying up toe18,000 per clip or almoste1m in total,78 plus a profit-sharing on sold units (SPIEGEL ONLINE 2003). Although the majors deny it, they have been repeatedly accused of charts manipulation (Sydney Morning Herald 2008, SPIEGEL ONLINE 2008, 2010, allkpop 2012). Moreover, monitoring agencies might forward own interests against other parties. This will ultimately require oligopoly or even monopoly regulation on the international level.
However, the need for regulation – although it shall not be neglected – might not be as high as it seems at first glance. New approaches have to abstain from the customary sticks (lawsuits, sanctions) in favor of carrots in the form of offering attractive music libraries with helpful and objective user-generated recommendation-systems. Furthermore, music
77For example, the Electronic Frontier Foundation recommends voluntary collective licensing while file sharing continues in the current way. The licensing money “gets divided among rights-holders based on the popularity of their music” (Electronic Frontier Foundation 2008: 1), while popularity is anonymously monitored by independent companies. Notably, Marine Le Pen of the French party National Front favors a similar approach rather than Nicolas Sarkozy’s HADOPI law (New York Times 2012). Especially in Germany, concept of a culture flatrate (Kulturflatrate) is increasingly debated (Rossnagel et al. 2010).
Mandatory fees seem more likely since the administrative effort would be tremendous linking voluntary payments to “legit” file sharers. However, to better separate legal from illegal use, national price dis-crimination for legal models can better address this issue. Competition between music service providers can result in constant improvements.
78From mid 2002 to mid 2003 the US Dollar and the Euro were more or less at parity.
consumption might not be the most sensible area of individual privacy – instead, many music enthusiasts see it the opposite way and are happy to share their listening preferences with peers or even the public. Each monitoring trades off some anonymity but only complete monitoring allows for a fair distribution of money to the artists and it can guarantee the best recommendation system. Central monitoring of listening behavior facilitates to identify and filter out attempts to corrupt the system. Since long-term business models rely on the authenticity of recommendations, the provider has a strong incentive to filter out fakes. As there will ultimately not be many providers, the providers might control themselves. Finally, providers have to concentrate on a good product for a good price that is superior to illegal or other challenging offers.79
It is important in any case to disseminate new models rapidly. Otherwise illegal infra-structure might improve even further whereas new models can re-establish the perception in the young generation that it is worth to pay for music. The licensing constraints in Germany by the collecting society GEMA for the streaming services YouTube or Pandora hinder the fast emergence of new models (see Billboard 2011, New York Times 2009).