October 26, 2004  ·  William Fisher

A sufficient number of interesting responses have been made to my original post on Alternative Compensation Systems that I thought I�d start a new thread. I can�t hope to address all of the themes that have been raised, but here are a few:

(1) Porn. Lots of people currently pay for access to pornographic films. If an ACS were instituted, some of the money raised through taxes would also end up in the pockets of the creators of pornographic films distributed for free online. Should we be troubled by this outcome? In my view, no. Arguably, we should be troubled by the fact that porn is so popular. But channeling money to pornographers through an ACS doesn�t seem any worse than channeling money to pornographers through the market.

A possible retort: �I may not be entitled to object if my neighbor buys porn, but I certainly don�t want any of my tax dollars going to porn.� The response: If you consume an average amount of recorded music and film, and if the sampling system used to manage an ACS accurately estimated the frequency with which specific recordings were consumed, then your tax dollars would go only to the artists you patronize. In other words, you would help pay for porn only if you watched porn. (For the same reason, your tax dollars will go to Britney only if you listen to Britney.) Admittedly, for this argument to hold, it would be crucial for the sampling system to work well, but we�ve already addressed this issue.

A final (and more powerful) retort: �The problem is not that my tax dollars would go to pornographers, it�s that legislators would refuse to establish a system in which any tax dollars went to pornographers. In other words, when instituting an ACS, they would insist on excluding from its coverage all pornography. We would thus start down a very dangerous road � in which government officials made judgments concerning which artistic works are meritorious and which are not.� I agree that this is a serious hazard. It�s not inherent in an ACS. But it highlights how an ACS might be distorted in the course of legislative implementation.

(2) Cross-subsidies. In an ACS, people who consume little or no recorded entertainment would pay the same amount as people who consume a great deal. It�s frequently argued that that�s both unfair and will lead to various economic distortions. This argument has a good deal of bite; such cross-subsidies definitely constitute one of the drawbacks of the system. The problem is mitigated by the fact that (under my version of the idea, anyway) only broadband accounts are taxed. (Thus someone who truly uses the Internet only for email and to check the weather can avoid paying the most substantial of the taxes.) The problem could be mitigated further if we used �Ramsey pricing� to set the tax rates (an issue discussed in more detail in Chapter 6). Finally, it could be reduced sharply if, as �.ant� suggest in his or her post) the ISPs upon whom the tax is levied charged high-volume subscribers more than low-volume subscribers. But the problem cannot be made to disappear altogether. Is it a fatal objection? In my view, no. The amounts of the taxes are modest. (The largest of them is the (indirect) tax on broadband subscriptions � which, in the first year in which the system were in operation, would be roughly $5 per month.) We tolerate vastly larger degrees of inequality in many other domains. (Think, for example, of public schooling, which is funded in the U.S. primarily by property taxes, borne in equal amounts by homeowners with no children and homeowners with many.) Bottom line: the overall savings of the system seem sufficient to justify a modest degree of inequality in the distribution of its burdens.

(3) Derivative Works. One of the greatest advantages of an ACS, in my view, is that it creates a sensible mechanism for dealing with composite recordings � rap songs that include samples of other recordings, modified or expurgated films, mash-ups. In sharp contrast to copyright law, an ACS regime would authorize persons to rework existing recordings, refashioning them into new products � provided they complied with two conditions: (a) they identified the owners of the copyrights in the original works when they registered their new works; and (b) they gave credit where credit is due. When a modified work were downloaded or streamed, both the creator of the original work and the modifier would get a share of the resultant revenue. (For considerably more detail concerning how such a system would work in practice, see Chapter 6.) The net result would be to liberate the transformative cultural activities the potential for which is perhaps the most important of the many benefits of the Internet, while continuing to compensate fairly creators of various sorts.

(4) Who Gets Paid? There are very good reasons, suggested by Kristin in her post, for requiring that at least some portion of the payments from an ACS be distributed directly to artists, rather than paid to the intermediaries (e.g., record companies) to whom the artists have assigned their copyrights. (Those reasons are explored in more detail in Chapter 5.) But there are two related catches: moving in this direction further decreases the already small probability that the major intermediaries would support the plan; and it would also increase the likelihood that the system would be challenged successfully as an unconstitutional �taking� of private property without just compensation.

For yet more objections to ACSs � and responses to those objections � check out the pertinent portions of Andrew Orlowski�s recent speech at the �In the City� Convention � available at http://www.theregister.co.uk/2004/09/23/orlowski_interactive_keynote/page7.html.

That�s probably enough on this issue. Tomorrow, I�ll venture some comments on an equally divisive topic: price discrimination. Thursday or Friday, if all goes well, I hope to veer in a different direction, discussing the current crisis involving the distribution of drugs in developing countries.

Thanks to everyone for your comments thus far.

Terry Fisher

  • http://locut.us/~ian/blog/ Ian

    Could you comment on this alternative compensation system?

  • http://snapgrid.com nathan b

    Mr. Fisher, I read chapter 6 and I appreciate your work, but let’s just call your Alternative Compensation Systems what they really are: Entertainment Subsidies.

    I think the problem is that you’re a wonk. Your preferred response to any issue is a complex system of regulation, head counting, bureaucracy, redistribution, and plate spinning.

    The real threat to Big Music isn’t sales lost to file swapping, it’s that musicians don’t need record labels for promotion, production, or distribution. Instead of signing their lives away to a record label, aspiring artists can cheaply produce music, sell or give away music and videos, sell t-shirts, accept donations, promote themselves, and retain or release their copyrights as they see fit. My problem with ACS is that it isn’t “alternative” at all, it’s the same old crusty industry except now we are buying their product whether we like it or not.

  • Justin Levine

    I have to second nathan b’s comments above. Hits the nail on the head.

  • http://b-dog.blogspot.com Brian Hunt

    I concur with Nathan B.; what we see in Canada, saw in Russia, and generally every other jurisdiction that has tried this scheme, is a bureaucratic nightmare with little or no benefit to artists, consumers, retailers, or distributors.

    The idea has its merits, but they are overwhelmed by the effective cost of entrenching an unsustainable industry at the expense of a natural evolution into a viable one.

    It could be different if users were able to choose which artists benefit from their fixed contribution to the fund. Giving the user that power has good and bad points, but it does solve the plethora of statistical and logistical problems inherent to estimation.

  • http://mooseyard.com/Jens Jens Alfke

    Nathan B’s comment is inexcusably rudely worded, but he has a point. The more I think over the whole issue, coupled with the history of popular music, the more I start to feel that music shouldn’t be a lucrative source of income.

    The best music has generally been made by those whose primary concern is making music, not getting rich. The cliche: “It used to be about the music, man!” Delta bluesmen, garage bands, bedroom techno artistes. Such small fry made minimal amounts of money off of recordings of their music even in the selling-plastic-discs economic model. The ones who got rich were the ones who got lucky (and much of the time lost the money on drugs or bad investments, and/or simply lost the ability to make great music), and the record companies.

    Nathan’s point is idealistic, but it’s true that being a recording artist takes very little money these days, with studio equipment and Internet access so cheap. What does take a lot of money is getting massive marketing to make yourself a household name, and I think my earlier post made clear that I don’t see that as a good thing, or at least not a thing good enough to require complex government intervention to support.

    What are we left with? Some kind of grants to small-scale artists would be helpful. It’s been argued that one of the reasons that so many amazing rock bands have appeared out of nowhere in the UK is that the dole gives the musicians a way to stay alive while they devote themselves full-time to music. I’d support that.

  • http://secondlife.com Cory Ondrejka

    Professor, this is a fascinating proposal, but I do have several comments/questions:
    - Gaming the system is going to be extremely difficult to prevent for all of the same reasons that DRM is most likely doomed. When the data and the key are on the same hostile machine, somebody will find their way in and then widely distribute the solution. In the same way, code running on a hostile machine can be modified easily by a technologically savvy user, so almost immediately the “plug-ins” would be cracked to allow reporting of whatever data the user wanted.
    - It doesn’t seem that this system addresses variation of value to the consumer. The Economist, for example, can charge a significantly higher yearly subscription fee than Entertainment Weekly, because its relative value to its (I suspect) smaller subscriber base is much higher. How does this system support niche items of high value to their niche?

  • nathan b

    Jens, I wasn’t trying to be rude, maybe “wonk” means something different in the UK.

  • javier

    I think that the system is workable as long as third conditions are met. First, the end user should be able to direct how his contribution will be spent. The End user could have an aid (meter) to help him realize how much he/she has played a given song, or seen a given DVD. Then the user could go to some website and select how to distribute his money. If the user wants it all to go to PORN, it is his/her prerrogative. Which bring us to the second. The government should be left as far away from this. Maybe they can help set it up, but they cannot run it nor subsidize it. Third, the corporation set up to administer this should only be a Mediator/Clearance House. It cannot be a Creator, nor Consumer, nor Distributor nor nothing, otherwise it will enter into a large Conflict of Interest

  • Roland

    Isn’t only taxing broadband users kind of short sighted? Is there going to be separation between broadband and non broadband in 10 years?
    And as more and more “free” audio and video (material in public domain, given away by the author, podcasting, whatever) content is put on the web, taxing “high volume” subscribers who are really downloading material that no-one has any financial interest in doesn’t seem fair either.

  • Roland

    Isn’t only taxing broadband users kind of short sighted? Is there going to be separation between broadband and non broadband in 10 years?
    And as more and more “free” audio and video (material in public domain, given away by the author, podcasting, whatever) content is put on the web, taxing “high volume” subscribers who are really downloading material that no-one has any financial interest in doesn’t seem fair either.

  • Erik Trickel

    Cory comments “Gaming the system is going to be extremely difficult to prevent for all of the same reasons that DRM is most likely doomed. When the data and the key are on the same hostile machine, somebody will find their way in and then widely distribute the solution. In the same way, code running on a hostile machine can be modified easily by a technologically savvy user, so almost immediately the �plug-ins� would be cracked to allow reporting of whatever data the user wanted.”

    As with most every other security system you have to decide where the level of tolerance is. Everything can be hacked by people willing to pay enough money, nothing is 100%. I think ways can be devised to minimize this threat through server side processes. I think the parallel you draw is absolutely correct and quite possible if complete anonymity is allowed, however partial anonymity could yield a solution where consumers are still protected and the evaluation process is shielded.

    Take for example the TIVO evaluation system. I have not heard of wide spread hacking to alter the results of their process (though that doesn’t mean it hasn’t happened). I think this might be because in order to contribute you have to be a paying TIVO member and each account has only 1 vote in a manner of speaking. This provides a server side solution to the problem and can succeed where DRM fails because both keys don�t have to reside on the hostile machine. Plus it also puts the consumer in a position that they want to protect their information because dissemination to others could result in a loss of personal information (like their credit card number); this means the machine is less hostile than the DRM scenario. This type of symbiotic relationship would have to be achieved by the ACS, and I am not sure it can be done with complete and total anonymity.

    The TIVO system is a potential model for how the ACS evaluation system could work. Create an environment where consumers wish to protect their IDs/certificates and only issue 1 ID/certificate per name/address/phone/DL# (or some similar combination of private identifying information). If you offer an incentive to the consumer and ensure not only top-notch protection of their information but complete anonymity of the actual usage tracking (use their ID/certificate only for authentication not vote tracking). Another feature that might need to be implemented is a 1 vote per item, account and for a specific period (though this does have the cost of some loss of anonymity). These ideas have the potential to severely limit the gaming effect especially in regards to automated gaming (which would be my biggest fear).

    Thoughts or comments?

    Cory comments “It doesn�t seem that this system addresses variation of value to the consumer. The Economist, for example, can charge a significantly higher yearly subscription fee than Entertainment Weekly, because its relative value to its (I suspect) smaller subscriber base is much higher. How does this system support niche items of high value to their niche?”

    Great question Cory, I hope Professor Fisher has time to respond to it for many media companies it could be a show stopper. The only idea to offset this issue is implementing some type of weighting system, but it would most likely be an administrative train wreck. I fear unbalanced distribution is problematic in this type of an ACS, but I am sure there is an angle I am missing.

    ErikT

  • Stephen Cochran

    A TIVO model? Ahh, I get it now – “Pay us a mandated fee, give up your right to privacy, and we will take care of the rest.”

    Lovely.

    ACS is nothing more than a new version of the NEA, whereby the goverment decides (through a legally defined system) what art to support. To tweak the system to favor one group over others, all it takes is a law proposed by bought-and-paid-for legislators, passed by indifferent legislators, and signed by a beholden president.

    Sounds great, where do I sign up?

    There is no system, other than direct payment of the artists/producers by the consumers, that will work well in the long term. The fact that we can’t do that efficiently _now_ doesn’t change the fact that any other system we put into place will be a bad hack at best. And once codified into law, getting rid of that bad hack will be another 60 year nightmare.

  • http://www.iconoplex.co.uk/ Paul Robinson

    The ACS is so brain-dead I ended up sitting down and writing out all the problems I had with it. It’s mostly a summation of what people have already put up here, but my write-up is here. It’s a lengthy piece, but quite frankly, as a liberal, Lessig’s government spying system combined with a market cap on the amount of money an artist can make, quite frankly, disgusts me. And yes, I mean Liberal in the UK/pure sense of the word, not the incredibly screwed up American sense that isn’t accurate.

  • Joe Allen

    One of the best aspects of the ACS is that it clearly allows for derivative works. So many other areas, as many have noted, are fraught with various problems and complexities that it is hard to imagine our government moving in this direction. I am wondering if it would be better to continue to challenge the current scope and practice of copyright law in hopes of regaining its original balance of private interest and public good.

    For instance, Prof. Fisher suggests the ACS would offer a �a sensible mechanism� for dealing with samples in rap music. Many producers sample out-of-print orphaned works, for instance an obscure funk 45 from the early 1970s, so the ACS would not clarify copyright ownership.

    The web site funk45s.com is building an archive of such rare recordings. For fear of copyright infringement, the owner of the site says, �The purpose of this site is to increase awareness of rare funk music, not to encourage music piracy or online trading of mp3s etc. To this end the audio is deliberately very low quality one minute samples which cannot be used for anything other than education.� Many of these recording were originally pressed in small qualities and, if available, are quite expensive in the collector marketplace. In practical terms, the music is inaccessible to the public unless a song could be found on one of the p2p networks. Although a few independent labels have legally reissued a few of these recordings, tracking down the original copyright owners is a daunting, time-consuming task, so most will never be legally re-issued any time soon. I am less concerned that the music industry has lost some of their current and future profits due to p2p downloading and more concerned about public access to recordings such as these � access for education, research, re-mixing, sampling, and other derivative works. (Ch. 6 of Promising to Keep concludes with a brief mention of the beginnings of a digital library of Brazilian music.)

    For actually changing the direction of cultural ownership and access, sooner rather later, will challenges to copyright law, such as Kahle v. Ashcroft, be more effective then sorting through all intricacies and constituents of the ACS?

  • josh

    What’s to prevent me from producing “Republican Rock”, that isn’t really music, but that people play continually (with the volume turned down) in order to fund the Republican party?

  • http://www.steadygains.com AJ

    Artists should give away their music for free, and allow it to be freely distributed. They would make money by selling call options to fans, options that would allow a fan to purchase a concert ticket if the band happens to tour in the fan’s region. (The option could also be construed as a fan club membership.) All concert tickets would be auctioned off, thus allowing the band to recoup the revenue currently lost to scalpers. Option holders get first rights on a group of tickets. In allowing their music to be freely distributed the artist would build a fan base in a rapid manner. This system would, obviously, work for up-and-coming talent that hasn�t yet signed to a traditional label.

  • J.B. Nicholson-Owens

    Why should I trust that the big book, music, and movie corporations will hold up their end of the bargain and not use their organized millions of dollars to oppose the change to copyright law (the change that allows everyone to build and distribute copies of works we have collectively paid for through taxation)?

    It seems to me that we are already losing the extant copyright bargain–where in order to bring the public more published works, the government grants a temporary monopoly on a published work in exchange for giving the public the freedom to do what they want with that work in perpetuity (the public domain). Reasonable proposals to underscore this exchange, like the Eldred Act, never become law.

  • http://www.silver-dragon-records.com Rock Music Man

    As an owner of a small indie record label and a musician I can personally relate stories of smal bands that have been destroyed by file sharing, CD copying, and the idea that music should be “free”.

    This is made more difficult by an attitude that our intellectual property is not as valuable as “legitimate” arts like movies, books and etc.

    We give away free music but not as a business decision but as an atristic one. We all make tremendous sacrifices for our art but the current climate is worse than ever for small labels despite the common knowledge belief to the contrary.

    The truth of the music business is that there is not much money in it anymore. Especially when our rights to our product is being discounted in value.