Voltage’s Shakedown of TekSavvy, Part III: the Fight for a Competitive and Democratic Internet

Over the past few weeks debate has roiled over Voltage’s mass copyright litigation scheme directed at TekSavvy users. This has many wondering whether the indy ISP has done enough to thwart the disclosure of subscriber identification linked to about two thousand IP addresses that Voltage alleges have been used to illegally share films and tv programs the company owns the rights for.

Here I want to add a few more thoughts to my previous posts on the topic (see here and here). The main aim is to provide a crisp distillation of the ultimate issues at stake, the benefits of TekSavvy’s approach so far and why I still believe that TekSavvy ought to directly oppose Voltage’s motion.

First, it is unequivocal that relative to what other ISPs in Canada have done, TekSavvy is in a league of its own. Other than Telus and Shaw in the precedent setting BMG case of 2004, only TekSavvy has raised as many hurdles to companies such as Voltage who seek to have ISPs turn over subscribers’ identification linked to IP addresses that are accused of being used for illegal file sharing purposes (see Howard Knopf’s posts on this point here and here).

In BMG, only Shaw and Telus led the charge against using ISPs as a means of getting to subscribers behind the IP addresses being sought. Videotron actively sided with the recorded music industry, while Bell and Rogers waffled. Fast forward to 2011, when Voltage launched a similar case (The Hurt Locker case), only to face zero opposition from the three incumbent ISPs targeted for the 29 IP addresses being sought: Bell, Cogeco and Videotron. Indeed, the three ISPs agreed to not show up in court at all.

Last year, Canadian film and tv producer and distributer NGN productions targeted four smaller ISPs, with much the same results: Distributel, Access Cooperative, ACN and 3 Web. All caved, and we hardly heard a peep about these events. Thus, compared to its counterparts, TekSavvy shines.

TekSavvy’s stance also lines-up well with international best practices and obligations of ISPs and digital intermediaries when it comes to protecting subscribers’ speech and privacy rights, as can be seen when we look at the Report of the Special Rapporteur on the Promotion and Protection of the Right to Freedom of Opinion and Expression prepared for the United Nations Human Rights Council by Frank La Rue in 2011. As LaRue’s Report states,

To avoid infringing the right to freedom of expression and the right to privacy of Internet users, the Special Rapporteur recommends intermediaries to: only implement restrictions to these rights after judicial intervention; be transparent to the user involved about measures taken, and where applicable to the wider public; provide, if possible, forewarning to users before the implementation of restrictive measures; and minimize the impact of restrictions strictly to the content involved. Finally, there must be effective remedies for affected users, including the possibility of appeal through the procedures provided by the intermediary and by a competent judicial authority (para 76, page 20).

In short, TekSavvy’s actions not only shine relative to most of its Canadian counterparts, they appear to be in line with international norms regarding speech and privacy rights. Still, however, there are three points upon which we can still reasonably ask for more.

First, the LaRue report puts a lot of weight on proper legal proceedings taking place before any limits to speech and privacy are implemented. While TekSavvy has done much to make sure that such proceedings take place with a great deal of fanfare and plenty of time for the thousands of Jane and John Does implicated to be notified — all in line with what UN report has to say – we must ask whether or not the legal process that LaRue refers to would be better served if TekSavvy directly opposed Voltage’s motion?

That is what Telus and Shaw did when opposing the motion for disclosure in the BMG case and it is, as I’ve argued, what TekSavvy should do in the present case. Indeed, Judge Mandamin, who is overseeing last week’s proceeding in the Voltage motion, seemed to have exactly this in mind when he noted that hearing a motion from only one side is risky, and that complex technical issues required those with the best knowledge of such matters, i.e. TekSavvy, to step forward.

Second, we can look to elsewhere for cases where ISPs have actively opposed attempts to enroll them into the machinery of copyright enforcement.  Two of the largest ISPs in the UK, BT and TalkTalk fought tooth-and-nail, for example, against sections of the 2010 Digital Economy Act that did just this. While they lost, BT and Talk Talk’s opposition was part and parcel of a wave of opposition, including the influential Hargreave Report, that sent key planks of the Digital Economy Act back to the drawing board.

Another UK case – ACS Law – MediaCat (and here) – showed how important opposing copyright claimants’ bids to pursue mass litigation campaigns against alleged illegal file-sharers is to revealing the shoddy quality of the evidence that often stands behind such claims. Lastly, the Australian ISP, iiNet successfully fought back a push by a group of 34 movie studios, the Australian Federation Against Copyright Theft (AFACT), to have the ISP play an active role in enforcing their copyright interests. iiNet won the initial trial case in 2010, on appeal to the Federal Court in 2011 and again in the High Court last year. In short, ISPs actively and directly opposing motions by a variety of copyright claimants has beaten back the tide on many occasions (thanks to Australian lawyer, Leanne O’Donnell, for the tips regarding these cases).

Third, the standard for disclosing subscribers’ information set in the BMG case is weak. Indeed, the idea that the claims being made are done in good faith falls far short of the stronger standards associated with the requirement that those pushing such a motion make a compelling case that they have a good chance of winning in court.

If speech becomes one of the pivots upon which such things will turn, then the standard will become higher yet. CIPPIC plans to push these points if it gains intervener status, but I can see no reason why having both it and TekSavvy pushing at the oars in unison won’t strengthen the case for moving the weak standards of disclosure that have been in place since BMG, and arguably behind why many ISPs since then have simply folded in the face of motions for disclosure, to much higher standards, and especially standards that put speech rights in the front window.

Ultimately, it needs to be established once and for all that ISPs can’t be turned into agents on behalf of copyright claimants such as Voltage. This is essential given that the ink on the new Copyright Modernization Act is not even dry yet, leaving it ripe for interpretation, as Judge Mandamin noted.

TekSavvy now stands in the best position to do this having been forced into playing that role to oppose the enormous burden that this places on ISPs. TekSavvy has a chance to stick up for important values with respect to its subscribers’ anonymous speech and privacy rights, and it should. Sure, CIPPIC could do this, but CIPPIC’s interests, as I noted in my last post, are distinct both from TekSavvy and its subscribers.

Until the likes of Voltage are successfully challenged, these pillars — speech and privacy rights — of a democratic communication space, which the Internet certainly is a crucial part of, will lay fallow, resting more on the rhetoric of internet freedom rather than a sturdy legal foundation, or economic one, for that matter, if even good (in the normative sense) ISPs like TekSavvy keep taking a financial beating. In short, I hope that the occasion can serve to effect an interpretation of the law that (a) minimizes to the absolute least amount possible the role that ISPs (and other digital intermediaries) are forced to play as agents in the copyright enforcement machinery and (B) maximizes internet users’ speech and privacy rights.

The fact that TekSavvy has broken ranks with past practices by incumbent ISPs and others, who have rolled over and disclosed subscriber info in pretty much every case after BMG (except Telus and Shaw, in that case), it would appear, also demonstrates the importance of having as much diversity and competition in internet access as possible. A more competitive and diverse supply of internet access means that subscribers will be less vulnerable to a handful of players being shaken down by copyright claimants for their personal information.

Voltage’s TekSavvy Subscriber Shakedown, Part II: Big Win for TekSavvy or Room for More?

Yesterday, a Federal Court in Toronto decided to postpone Voltage Picture’s motion to have TekSavvy divulge subscriber identities linked to 2000 IP addresses that Voltage claims have been used to share its movies illegally. Does the result vindicate TekSavvy’s refusal to oppose the motion and mark at least a partial victory for its subscribers, as some are suggesting? 

My friend and colleague David Ellis makes an excellent case for why the answer is yes. As David sees things, far from caving, TekSavvy “was in fact working against Voltage on several fronts”. I’ve talked with several people with good knowledge of the case, thought long and hard about it, and while I agree with many of David’s points, I’m not convinced TekSavvy got the wins he thinks it did.

Let’s start on the positive side of the ledger though, because there is much to appreciate in what TekSavvy has accomplished thus far, with potential for more to come.

Standing Up for Subscribers

First and foremost, TekSavvy has dedicated many hours and, according to statements made in court, already spent $190,000 in legal fees and other costs fighting to ensure that its subscribers’ interests are properly accounted for. Besides David’s kudos for TekSavvy, CIPPIC’s director David Fewer is emphatic that the indy ISP deserves much praise for fighting strongly for its subscribers to be notified and more time to put together a proper legal defense.

Standing up for CIPPIC and the Public Interest

Second, TekSavvy has pushed hard to open space for CIPPIC, the public interest internet law and policy clinic, to gain standing in the case (more on this below). While nothing has been decided on this point, comments by Judge Leonard Mandamin suggest that CIPPIC will gain standing, as David’s post and live tweets from the court room by Paul Andersen and National Post reporter Christine Dobby, indicate.

Voltage argued strenuously against Teksavvy advocating on behalf of a role for CIPPIC. Its lawyer, James Zibbaras, argued the move to defer a ruling was just a delaying tactic to mask the fact that TekSavvy had no case. Justice delayed, would be justice denied, he claimed, because as the courts fiddled, Voltage’s movies would be ripped and burned across the planet. The judge was having nothing of it, however, and the matter was put on hold.

Starting Over: Letter from Voltage – Dear Fans

Third, TekSavvy’s counsel, Nick McHaffie, succeeded in getting Voltage to walk its scorched earth strategy back several steps. Whereas Voltage went straight for the subscriber identities linked to the 2000 IP addresses it has identified, this bypassed the usual first step in such cases: asking ISPs to politely send cease and desist letters to those allegedly engaged in illegal file-sharing, while using this as an opportunity to convert pirates into paying fans.

Voltage did none of that. A late in the game bid by McHaffie, changed this. As a result, Zibarras agreed to do just that, with McHaffie making it “very clear”, according to Ellis, “he intends to put language into the draft order that will protect the privacy of potential defendants”.

Compared to Other Canadian ISPs, TekSavvy’s a Saint

Fourth, TekSavvy’s efforts, as Jean-Francois Mezei put it in a perceptive comment to my last post, distinguishes the indy-ISP from others who have rolled-over and shut-up in two similar cases. In the first, also brought by Voltage in 2011, Bell, Videotron and Cogeco not only did not oppose the motion to disclose the identities linked to fifty IP addresses alleged to have illegally shared the movie The Hurt Locker, they didn’t bother to even show up in court. Despite winning the case, Voltage abandoned its claims last March and things came to a halt (also see here).

In another case late last year, four ISPs – Distributel, Access Cooperative, ACN and 3 Web – faced a similar motion by Canadian motion picture company, NGN Productions. Once again, all ISPs were missing in action, leaving their subscribers hanging in the wind (also see here and here).

At this point, I also need to clarify and correct a point I made in my last post: in the precedent-setting BMG case, far from all of the incumbent ISPs lining up against the record labels, only Telus and Shaw took the lead, while Bell and Rogers selectively and reluctantly joined the fold; Quebecor (Videotron) actively sided with the record labels (see CIPPIC’s archived materials).

In short, relative to most ISPs, TekSavvy is a saint, and should be applauded for walking the extra mile on behalf of its subscribers.

A Glass Half Empty/Full: What Else is a Good ISP to Do?

While TekSavvy has gone well-beyond the norms that prevail among Canadian ISPs, its stance still falls short of what is possible, not just in some fantasized world but against what seems achievable through the legal resources available as well as relative to best practices adopted both in Canada and elsewhere.

Delays May Be Useful, But Are Not a Legal Victory

The first thing to note is that even after spending $190,000, TekSavvy has not won anything yet in terms of a legal ruling other than two delays that allow others more time to get their houses in order. More to the point, it is still not opposing Voltage’s motion.

Standing Up for Privacy is a Real Option, even if not an Obligation

While discussion with others has led me to accept that Canadian law, and PIPEDA specifically, does not compel ISPs to take a stance on behalf of their subscribers’ privacy, the latter does give them the opportunity to do so. TekSavvy should take it.

That it has not stands at odds with best practices set by Telus and Shaw in the BMG case. Even Rogers, which otherwise waffled in the face of the record labels’ case at the time, agreed that ISPs are “obliged to protect . . . the privacy of their customers . . . by virtue of the Personal Information Protection and Electronic Documents Act (2000)”(para 13). This appears to be a moral position rather than a legally compelled one, but so be it if it aids in gaining a big win for subscribers’ privacy. After all, human rights are but empty legal shells if not moral rights, too.

CIPPIC is Not a Proxy for TekSavvy

While TekSavvy’s intervention has opened space for CIPPIC, the decision to defer a ruling on the motion does not guarantee it will be permitted to intervene. Even if it is, CIPPIC is not a proxy for TekSavvy but, as its request for intervener status states, it “brings an important public interest perspective to the proceedings, different from the Plaintiff, the Defendants and the non-party Respondent” (emphasis added).

As CIPPIC director David Fewer told me, CIPPIC’s first role, if it is granted intervener status, will be to underscore the importance of the right to anonymous speech online, with judges functioning as the safety valve in determining when such rights must yield to more pressing public policy concerns such as hate speech, defamation and copyright (see dayna boyd for good discussion of the vexed issue of anonymous speech rights). If the Voltage motion is not just about privacy rights, but speech rights, the fundamental question is which test will be used to decide when the right to anonymous speech can be over-ridden?

The continuum of options stretches from the weak ‘good faith’ standard adopted in the BMG and other copyright cases versus stronger standards in expressive rights cases that require those pressing a claim to demonstrate they possess evidence that is of a high enough standard that they just might win. In other words, when property rights trump speech rights, there better be good policy reasons and strong evidence for doing so.

CIPPIC’s stance reflects the increasing awareness that copyright claims have enormous implications for freedom of expression. That might not be of interest to TekSavvy, but it is a public interest of the highest order. It is also why CIPPIC needs to be in the room.  

CIPPIC’s second concern is to raise questions about whether the courts are being used illegimately as part of copyright trolls’ business model, a model that depends on people, when faced with threat of litigation, making the rational choice to fold simply be settling rather than going through a costly court case. That Voltage went straight to a motion for disclosure versus taking the time to send cease and desist letters throws such concerns into sharp relief.

CIPPIC’s role, thus, is specifically not to intervene on behalf of any of the Jane or John Does that might stand forward in the Voltage motion or TekSavvy because the interests of each of these groups are not one and the same. ISPs must take a stand for themselves. And within a mountain of factors making it unlikely that the hundreds, if not thousands of Jane and John Does will be able to effectively participate, as Howard Knopf states, CIPPIC’s job is to suggest how the law should be applied, what tests should be used when property and speech rights clash, and to uphold the public interest.

TekSavvy, the Federal Court Wants (Needs) You

Towards the end of yesterday’s hearings, Judge Mandamin indicated that hearing a motion from only one side is risky. Two possible interpretations seem to flow from this: One, CIPPIC could play a more adversarial role, and perhaps it will. Or two, TekSavvy needs to step up to the plate more forcefully than it has.   

I think the judge had the latter option in mind, but it is likely that only he and others in the room will ever know for sure. Two things seem to support this interpretation. First, Mandamin was clear that the Copyright Modernization Act, which just came into effect last November, is new and untested, meaning it’s ripe for interpretation and essential to get things right. TekSavvy has an opportunity to help define the new law and should use it. This is a job for those on the front line, not CIPPIC or a rag-tag group of Jane and John Does who may or may not show up when needed.

Judge Mandamin also made it clear that there were difficult technical issues that had to be dealt with and that the court needs to be as informed as possible. TekSavvy is in a better position than any to test the quality of the technical evidence, and for this reason, too, it should go beyond its current stance to directly oppose the motion.

Not a Fantasy

In the end, it is not that TekSavvy is doing nothing. As I argue above, and as David Ellis shows, it has done much, especially relative to what other ISPs have done. For that, we should stand in support of Marc Gaudrault, rather than casting barbs from the sideline.

That said, however, there is scope to do more. My desire to see more does not stem from seeing TekSavvy as falling short of some other-worldly standard of privacy or anything else, but concrete possibilities within currently existing laws, as Telus and Shaw (and to a lesser extent Rogers and Bell) showed in the BMG case and, as I suggested, in my last post, by best practices adopted by Sonic.Net and Twitter in the U.S. and ISPs in Sweden.

They  have taken an active and assertive role in directly opposing motions by copyright claimants and/or the state to disclose their subscribers’ account-related data. In the case of Sonic.Net as well as the Swedish ISPs, they  embraced policies that minimize the collection, retention and disclosure of subscriber information, thereby making it harder to turn-over subscriber information to copyright trolls, and anyone else, because they simply do not have it.

Yes, as someone I respect very much told me, I should be careful what I wish for, because if this mini-campaign for minimalist data collection, retention and disclosure policies gains legs, it’s possible the Harper Government would step in to mandate a minimum data retention law, likely in the range of six months.

My response is two-fold. First, we’ll deal with it if it happens. It’s not possible to be shadow-boxing with ‘what-ifs’. Should ISPs and other internet companies adopt this pet-project of mine, and face such a reaction, as some smart minds contemplate, then let us resume the battle royale that such a move could trigger, similar to the public outcry to the government’s last lawful access bill (Bill C-30).

Second, if expressive rights are tied to concerns about control over our own personal information, then perhaps it would be possible to challenge any attempt to legislate a data retention requirement on grounds that such a measure is excessively broad and an affront to speech rights? A more tailored response seems to have been grasped in the new Copyright Modernization Act where the need to retain subscriber data for six months only kicks in after an ISP receives notice of IP addresses that have been linked to infringing behavior. Data retention seems to be a bit of a blackhole when it comes to the interests of property and the state in Canada, and the sooner we shed some light on it, the better. 

Last Words

David Ellis, J.F. Mezei, and others are right that TekSavvy has done more than most and won a few victories along the way. With all that TekSavvy has done over the years, it would be churlish to see it as selling out. 

However, there is more that it can and should do. At this early stage in the shaping of the new copyright law, carving out an even greater role for itself could fundamentally shape the legal landscape for the internet and digital media for years to come.

And it is for all these reasons that I hope it will rise to the occasion, while being mindful that it has done much already and itself not privy to an unlimited stash of cash. Perhaps this is grasping at straws, but how about a John and Jane Doe and TekSavvy Copyright Troll busting fund?

If that’s an option to be pondered, I’m in for $190 to start (1/1000 of what TekSavvy has on the table so far).

Voltage’s Teksavvy Subscriber Shakedown: What’s a Good ISP to do?

Tomorrow will be a big day in a federal court in Toronto. At 11am, the court will hear a motion by Voltage Pictures to have Canadian indy-ISP and darling of the open internet community, TekSavvy, disclose the subscriber names and contact addresses associated with a list of 2000 IP addresses that Voltage alleges have been used to upload and share its films and tv programs in violation of copyright law.

At the end of the day we may know whether Voltage has prevailed and TekSavvy forced to hand-over the subscriber account information linked to those 2000 IP addresses. But while we wait, there is another question that I want to address in this post, and that is whether TekSavvy has done as much as it should to oppose Voltage’s motion?

As TekSavvy’s CEO Marc Gaudrault stated in DSL Reports last December when the case first erupted into public view, “we will not be making a case against the merit of what they are alleging. That’s for those affected and others to do if they wish to.”

That refusal to take a stand, to put it mildly, has displeased many of its subscribers. It has also unleashed a roiling discussion thread on DSL Report as well as the blogosphere. Respected copyright lawyer, Howard Knopf (here, here and here) and Jason Koblovsky (here & here), one of the co-founders of the Canadian Gamers Organization, have been highly critical of TekSavvy, arguing that it should be doing more to push back against Voltage’s shake-down of the ISP.

Drawing on his experience as legal counsel to CIPPIC in a close parallel to the motion now in front of us — the BMG case in 2005 — Knopf argues that TekSavvy should take the lead in opposing Voltage’s motion for at least three reasons:

1. First, since it is the only entity that can resolve the link between IP addresses and subscriber identities, it is in the best place to challenge the technical evidence that Voltage and its forensics contractor, Canipre, have put forward;
2. Second, in the BMG case, Telus and Shaw actively stood in opposition to the record labels’ bid to obtain subscribers’ identities on just this ground and TekSavvy should do no less in the present case, especially given that it holds itself out as being more attuned to its subscribers’ interests than its corporate cousins – a point that Koblovsky also relies on heavily;
3. Third, it is too much to ask of CIPPIC, an organization with a skeletal staff and limited resources, to take the lead in the case.

The criticism of TekSavvy has led to a lot of soul-searching, mostly because, to most observers, the indy-ISP has been on the side of angels. The little-ISP-that-could, for instance, led the charge against the CRTC’s hated UBB decision in 2011, has intervened time and again in a myriad of regulatory decisions in which the fate of indy-ISPs has been on the line, held itself up as a plucky alternative to the incumbents with more affordable services, bigger caps or none at all, and has been a patron of Open Media, probably the most successful group this country has ever seen in terms of opening up arcane telecom, media and internet policy issues to a much bigger audience.

So, not surprisingly, others have come to TekSavvy’s defense. Most notably, in addition to denouncing Voltage’s mass copyright litigation (here and here), the other day David Ellis chastised TekSavvy’s critics. As Ellis sees it, TekSavvy has being working hard on behalf of its subscribers for two months. Moreover, TekSavvy quickly joined CIPPIC to ask the court to postpone the matter to give the ISP more time to notify its subscribers, for the court to consider CIPPIC’s request to join the proceedings and to give Voltage and its hired-gun, Canipre, more time to clean up their data. Ellis also suggests that the distance between pushing for a delay and outright opposition might not be that far, and we could still see it take on a more active oppositional role yet.

He also argues that TekSavvy’s reticence to take a stance is probably due to concerns that doing so could jeopardize its claims to being a neutral, common-carrier. In this view, by staying neutral, TekSavvy avails itself of ‘safe-harbour’ provisions that get ISPs off the hook in terms of their own liability in copyright infringement cases.

While I agree with Ellis that TekSavvy could yet change its stance, and that it has done much to buy its subscribers time to arrange their own defense, I do not think it has done enough. I also think worries that actively opposing Voltage’s motion could jeopardize its ‘safe-harbour’ defense are misguided. As a common carrier, ISPs already have limited liability for what their subscribers do, and what TekSavvy does in the courtroom will have no effect on that.

I agree with Knopf that TekSavvy should be taking the lead in opposition to Voltage’s shake-down because it is in the best place to do so from a technical point of view. That there may be problems with the technical data that Voltage is presenting is evident in the fact the company cut their initial list of 4000 IP addresses down to 2000 at the last minute – a good sign that things are not quite in order. Given the weight the BMG case put on the quality of the data in determining whether privacy would be trumped by other pressing concerns, this is essential (see para 21).

Second, ISPs are common carriers and this means their liability for what subscribers say and do is very limited, both by law and by tradition. The basics of what that means is set out in the Telecommunications Act of 1993 (see sections 27-29 and 36). Common carrier principles are also carried over into the new Copyright Modernization Act, as the following passage indicates:

A person who, in providing services related to the operation of the Internet or another digital network, provides any means for the telecommunication or the reproduction of a work or other subject-matter through the Internet or that other network does not, solely by reason of providing those means, infringe copyright in that work or other subject-matter (sec. 31(1)).

Incumbent ISPs have always reserved the right to aid copyright claimants (read your Terms of Service agreement) and, indeed in 2011 Telus said that it was sending out 75,000 notices a month of alleged copyright infringement to its subscribers. The new Copyright Modernization Act has parlayed this informal arrangement into a notice-and-notice regime that now requires ISPs to do the same thing as a matter of law, and to retain and disclose subscribers’ information for a period of six months after receiving notice of copyright infringement.

There is nothing in the new act or the old legislation, however, that prevents or even discourages ISPs from taking a stance against a motion for disclosure. Again, as Knopf observes, when mass copyright litigation first hit Canada in the BMG case, Shaw and Telus stepped up to oppose BMG and the rest of the recorded music industry arrayed against them. Moreover, while Bell and Rogers were less committal in the opposition, ultimately they did line up foursquare with Shaw and Telus behind the view, as the court stated, that ISPs should step forward to “protect[] the privacy of their customers whom they were obliged to protect by virtue of the Personal Information Protection and Electronic Documents Act (2000) (para 13). They won.

TekSavvy should do the same. Going out on a limb a bit, at least one seasoned lawyer that I have spoken with suggest that the case could be fought and won easily, for five figures, i.e. under $100k.

Beyond the BMG case we can also look further afield to the United States at a recent example of what a real stance opposing a motion of disclosure looks like. Thus, when faced with a request from the Department of Justice to hand-over account information for three of its subscribers, without telling them, as part of the DOJ’s investigation of Wikileaks, Twitter refused. The company obtained a court order allowing it to disclose the request to the users in question. It also put them in touch with legal counsel at the Electronic Frontier Foundation.

Finally, Twitter fought the request tooth and nail, all the way to appeal, but lost because, according to the ruling, the social media company’s business model is based on the unbridled collection of user data for advertising purposes in return for free access to the service. The upshot of that, in turn, is that users have no reasonable expectation of privacy and thus Twitter had to hand over subscribers’ account information to the state.

Whether Twitter won or lost is not the key point; the fact that it stood up to the plate, and fought to the bitter end in support of its subscribers and a principle – privacy – is. Moreover, while a loser in the court of law, in the court of public opinion, it won: Twitter’s chief lawyer, Alex MacGillivray, was named by The Guardian as one of its top twenty “champions of the open internet” last April.  The Electronic Frontier Foundation offered its own honorifics.

The last point that I want to make is that TekSavvy has another option at its disposal: minimizing the collection, retention and disclosure of subscriber data as a matter of company policy. Apparently there has already been some discussion of this, with the ISP at one point in time before the Voltage motion hit the fan thinking about increasing the length of time that it keeps data logs from three months to six. That is now off. And that is certainly a good thing.

There are many reasons that ISPs need to keep data logs, not least of which are billing and network management. However, there are also ways of meeting these needs that limit the data kept to just these narrow purposes and which otherwise minimize how much data is collected, how long it is retained, and when it is disclosed. Billing data, for instance, can be kept separate from traffic data, with the former retained, and the latter tossed.

There are two excellent examples along these lines that I’ll close this post with. The first is Sonic.net, a San Francisco Bay area ISP with 45,000 subscribers. It keeps subscriber data logs for only two weeks and has been the recipient of copious amounts of praise and a four-star rating by the Electronic Frontier Foundation in the latter’s annual “Whose got your back” scorecard because of this practice. TekSavvy could take some lessons from Sonic.net.

Lastly, in 2009, several Swedish ISPs, including one of the top 3 – Tele2 – began erasing “traffic data” in order to protect their subscribers privacy. They did so in response to the Sweden’s own new copyright law, IPRED, and in order to avoid precisely the kind of predicament that TekSavvy now finds itself in.

In my view, such a minimalist data collection, retention and disclosure policy is part and parcel of what a full-throated defense of principles and its subscribers would look like. The point is not to turn TekSavvy into a scofflaw, or a ghetto for copyright infringement abuse. The case of Sonic.net, Tele2, Twitter, and others demonstrate well that strong privacy and subscriber protections are not tantamount to such things, and indeed are good business and good for people’s rights.

Minimizing the collection, retention and disclosure of subscriber information embodies practices and values that apply across domains. Today it is copyright; tomorrow, lawful access and the son-of-Bill C30 (lawful access). Such values and practices will serve us well in that context, too.

We are in the midst of many events and choices that will be made that will set down the firmament in which the internet establishes deep roots. In my mind, we need to realize that these decisions and events will determine whether we can develop an internet fit for democracy, or whether we will see trade-offs all down the line to the point that an open internet and democracy are just a dream. Good night.

* Note: revised January 14th to acknowledge that Bell and Rogers were far more tepid in their stance than Telus or Shaw in the BMG case, while Quebecor (Videotron) actively sided with the record labels.

Movies and Money, 2011: Bluster and Blockbusters, the Sequel

The Motion Picture Association (MPA), the lobbying arm of the major Hollywood studios, was out again last week playing whack-a-mole with anyone audacious enough to entertain heretical ideas.

This time it was a three-page abstract (yes, the abstract) of a paper, Piracy and Movie Revenues: Evidence from Megaupload, by German and Danish scholars Christian Peukert and Jorg Claussen that seemed to get on the MPA’s nerves. The abstract had sat in relative obscurity on the SSRN research website for the past month-and-a-half until Torrent Freak trotted it out last week with a trumped up title that the MPA certainly did not want to hear: “MegaUpload Shutdown Hurt Box Office”.

The title played fast and loose with the thrust of Peukert and Claussen’s paper — most films probably see a small but insignificant negative effect on theatre attendance when sites such as MegaUpload are taken down — but it was not the journos and bloggers that the MPA went after, but the paper’s original authors. The thought that sites like MegaUpload might actually be good for the movie business by helping to put more bums in theatre seats must have seemed to be just too heretical to let stand, especially when coming from academics.

As Peukert and Claussen explain, file sharing may be good for a lot of movies released in theatres every year, but by no means all, because people sharing files online can

. . . spread information about a good from consumers with zero or low willingness to pay to users with high willingness to pay. The information-spreading effect of illegal downloads seems to be especially important for movies with smaller audiences.

The upshot is that, for most movies, putting file-sharing sites (Megaupload, Isohunt, Pirate Bay) out of business could reduce the size of the theatre-going audience — the exact opposite outcome intended by those who believe that strong copyright laws and enforcement are essential to remedying whatever might ail the traditional media. Whereas Peukert and Claussen deliver this conclusion in careful and measured language, the headline pinned on the article describing their work by Torrent Freak, “MegaUpload Shutdown Hurt Box Office”, definitely did not.

The thrust of the Torrent Freak piece played well to the open internet, copyright minimalist crowd, confirming that the incumbent Hollywood movie moguls must have their heads stuck in the sand, given their steadfast and stupid resistance to the new way of doing things in the ‘new internet economy’. Technically, the headline was true. The problem, however, is that this particular truth hides an even bigger one, at least for the MPA and its members: the slight impact seen for most films does not hold when it comes to the MPA members’ blockbuster films, you know, the big budget spectacles that open on 500 screens across North America all at once (before moving in carefully staged sequences across the planet).

This is a pretty big exception and basically covers the 140 – 150 films produced by the Hollywood studios each year and which are the real bread and butter of the MPA’s corporate rank and file: Time Warner, News Corp, Disney, Sony, Paramount (Viacom) and Universal (Comcast NBC). For these films and the majors that finance and produce them, Megaupload and its ilk are bad news indeed, and little in Peukert and Claussen’s study challenges this idea.

To suggest that this is not a main part, if not the main part of the story, is misleading.  As far as I can tell, however, this is not the fault of the paper’s authors but how their work was pumped up into something that it wasn’t by the blogerati and real journos who seem ever more prone to trolling the blogosphere and twitter for ideas and inspiration.

Not surprisingly, the MPA, had a radically different take on things, given that its main concern is not with most of the six hundred or so films released in theatres around the world every year, but the 140 – 150 films produced by its members which account for most of the revenues in the movie business worldwide.  As the MPA interpreted Peukert and Claussen’s paper, correctly in my view, the evidence seems to suggest that blockbuster films have bigger theater audiences when they do not compete with Megaupload and other such sites. This is probably because the massive promotional budgets associated with the blockbuster does not need file-sharing to amplify and augment word-of-mouth to build buzz around a film in the way that smaller films, of a more obscure vintage produced and distributed outside the Hollywood system, do.

However, to stop here would be to give the MPA too much credit. The MPAA does little more than point to the obvious. More importantly, instead of focusing on how scholarly findings have been twisted and trumped up by bloggers and journos, the MPAA takes a run at Peukert and Claussen’s methodology, as if it is the scholars rather than others that are out causing mischief.

The assault on methodology is wide of the mark. Designed more to dirty the waters and distract attention, it is an exercise in intellectual dishonesty. While trying to cast doubt on the paper’s methodology as if such things undermine the study’s conclusions, the MPAA offers zero evidence to buttress its criticisms or its own view that piracy and file-sharing are bad and the copyright maximalist position obvious and good.

Six Decades of Cassandra Calls and Falling Skies

These tactics are not new but part of the DNA of the film industry in the United States. Hollywood has been trotting out tales of impending doom since the Paramount Decision in 1948 by the Supreme Court that forced the major studios to divest themselves of the theatres they owned in order to foster independent theatres that would hopefully be more responsive to audiences because less obligated to show the slate of films foisted upon them by their studio masters.

The story of impending doom continued in the 1950s and 1960s when tv became a fixture in North American homes. To be sure, film theatre attendance did fall for nearly two decades during this time, but was this because people abandoned theatres for tv at home, or the result of a combination of factors: the move to suburbia, widespread adoption of cars as well as the embrace of television? I think it is the latter that is the case, as do others (see here and here, for example).

The more important point, however, is that by the 1970s television became the film industry’s pot of gold at the end of the rainbow, moving unequivocally from threat to one of the most lucrative new media markets the movie business has ever known. The same lesson came to apply to the VCR, DVD and every other personal video recording device thereafter, yet again, not before the MPAA and its members demonized each new technology as an existential threat to the movie business and a particular American icon.

Most famously, the MPAA’s then chair, Jack Valenti likened the VCR to the Boston strangler, as much a threat to the film industry as darkness is dangerous to damsels in distress. And yet again, a mixture of new, ever more personalized media technologies, along with the increased individualization of pleasure and social life in general, led the VCR, DVD, PVR, and so forth to become not just important new lines of revenue for the film industry but the most significant sources of growth (see below).

Movies and Money, 2011

If there was ever a case that an old medium would be decimated by the new, you might think that a medium born in the 1890s would be a star candidate for extinction. However, as one of my mentors and teachers Janet Wasko once told me and my fellow classmates, each new audio-visual medium has typically opened up a new market for the major Hollywood studios and other film distributors.

This was a lesson she had drawn from her research in the 1970s and 1980s and which she told us about in the early 1990s.  But perhaps everything has changed since then because of digitization and the rise of the Internet?

Not really.  A couple of things illustrate the point.

First, let’s take a look at the MPA’s most recent report on the subject. According to the MPA, worldwide box office revenues were at an all time high in 2011 at $32.6 billion (USD) – up from $31.8 billion a year earlier. The North American box office saw a very modest decline, but has generally stayed quite steady for the last few years, which also means that it was the global box office that helped to lift the tide. The following figure shows the trend.

Figure 1: Domestic and Worldwide Theatre Box Office Revenues, 1998 – 2011 (millions USD)

Sources: Motion Picture Association (2011). Theatrical Market Statistics.

The fact that box office revenues have climbed significantly from $26.3 billion to $32.6 billion between 2007 and 2011 amidst the global financial crisis and ensuing economic downturn is also impressive, basically showing the resilience of the movie business in the face of economic hard times.

And this is less than half the picture, actually, as we can see as soon as we cast our net a little wider to consider all revenues sources across the ‘total film industry’, including pay-per view tv services, cable and satellite channels, rapidly declining video/DVD rentals and fast rising over-the-top (OTT) subscription services (Lovefilm, Netflix, etc.) and digital downloads (Apple, Amazon, etc.). As soon as we bring these areas into view, any sense of doom and gloom in tinsel town should dissipate.

Indeed, the movie business is doing even better than the box office numbers suggest, with total revenues rising sharply on a worldwide basis from $46.5 billion just before the turn-of-the-21st century to $83.5 billion in 2011. Figure 2 below shows the trend.

Figure 2:  Total Worldwide Film Industry Revenues, 1998 – 2011 (US$ Millions)

Sources: Motion Picture Association (2011). Theatrical Market Statistics; PWC, 2012, Global Entertainment and Media Outlook, 2012 – 2016 (plus previous years; e.g. 2009; 2003).

Again, several things of note stand out from Figure 2. First, like the box office, revenues for the total film industry continued to rise from $80.3 billion in 2007 to $83.4 billion in 2011 despite the economic malaise affecting much of Europe and North America since the global financial crisis of 2007-8. Many areas of the media industry are very heavily dependent on the state of the macro economy but this seems less true of the movie business.

Second, while total revenues for the movie industry continue to grow, the number of films produced by the Hollywood majors per year continues its decade-long decline to the point where in 2010 and 2011, MPA members produced 141 films versus around 200 per year in the late-1990s and early-2000s. This is an important development and reflects the fact that the majors are trying to cut through the clutter of a crowded media economy by relying on a smaller number of spectacular blockbusters with massive budgets backed by equally massive promotional campaigns.

The average budget of the top 10 blockbuster Hollywood film nearly doubled between 2000 and 2010, rising from $109.2 million in the former year to $197.2 million last year. The primary objective, of course, being to keep the three scarce resources of the media economy — time, money and attention — fixed on the MPA members’ own wares.

Table 1 below shows the following trends: a declining number of blockbusters produced by MPA members, rising number of independent produced films over the past decade, and lastly a greater number of films overall, but with a relatively stable output of about 550 to 600 films per year for the past half-decade.

Table 1: Number of Films Released in Theatres, MPA vs. Non-MPA Sources, 1998 – 2011

	1998	2000	2002	2004	2006	2008	2009	2010	2011
Total # Films Released	509	478	475	489	594	634	555	569	610
MPAA Total	235	197	205	180	204	168	158	141	141
Non-MPAA	274	281	270	309	390	466	397	428	469

Source: MPA (2012). Theatrical Market Statistics.

There is, however, one other thing that stands out from Figure 2 above that puts a bit of a fly-in-the-ointment in the story that I am telling of consistently rising total revenues: namely, that while increased revenues from television and various video services have added immensely to the movie biz’s total revenues over the past thirteen or so years, such revenues appear to have peaked in 2004 ($54.9 billion) and have fallen significantly since to about $50.9 billion.

Why is this? I’m not exactly sure. The days of torrential growth in television seen during the 1990s and early-2000s as countries the world over picked up the tv habit, notably in the fast growing economies of China, Brazil, Indonesia, India, Brazil and Russia, might be slowing down, perhaps. However, over and against this view, the size of the total tv market worldwide has continued, according to PriceWaterhouseCooper’s Global Entertainment and Media Entertainment Outlook, 2012 – 2016, to grow very significantly, rising from roughly $280 billion in 2004 to over $400 billion last year. I would love to hear why revenues in this area have fallen for the last several years.

Concluding Comments

The next time you hear about the movie industry (or any other media sector for that matter) falling on hard time because of digitization, the Internet, piracy, and so forth, think about these trends. And please repeat after me: the movie industry is not in crisis; for the most part it is flourishing.

These are important observations because it is the same vested interests that want us to think that the sky is falling which use these mistaken impressions to:

1. push for changes to copyright laws and a clamp down on Internet Service Providers in ways that wouldn’t otherwise have a hope in hell of succeeding;
2. exert leverage over politicians and policy-makers, who have often accepted the bulk of such arguments while crafting the raft of new and reformed copyright legislation that has been installed around the world in the past few years. As a recent example shows, even the Republican Congressional staff’s think tank in the U.S., the Republican Study Committee, felt compelled to yank a policy discussion paper on copyright reform authored by one of its staff from its website just hours after releasing it and after the MPAA and RIAA are said to have “went ballistic“;
3. play cities, states, provinces and countries around the world off of one another for subsidies and favourable labour conditions;
4. and in labour bargaining with unions representing film and television workers, with the latter easily made to appear outlandish in their demands for good wages and working conditions in light of the steady drumbeat of public relations saying that the movie industry stands on the edge of the abyss.

Wealth Destroyers and End Game for the Copyright Modernization Act (Bill C-11)

Some of you may have noticed that I’ve been away for a while. Sorry about that for those of you who missed me. Let’s just say that I learned the hard way the steep cost of blogging, twitter, facebook, writing for the Globe and Mail, all for free, while holding down a real paying job where one has to actually teach, research and contribute to the department you’re in. There’s only so many hours in a day.

While away there’s been a mounting backlog of stuff to write about, and over the next few weeks I’ll unfold a series of blogs, but let me kick off with the current state of play for the Copyright Modernization Act (Bill C11). This is the fourth effort to revamp copyright law in Canada in the last seven years, and things are rapidly coming to head.

The bill itself has numerous elements that are actually not bad as currently written (no term extension for copyright holders, a very limited role for ISPs, search engines and others as ‘digital gatekeepers’, an innovative user created content add-on to fair dealing, etc.), but deeply troubling aspects as well (the digital locks provisions, notably). While the Bill has passed second reading and finished committee review yesterday (March 7), during the latter stage the ‘copyright maximalists’ lined up one after another in a last ditch push to convince MPs that the bill needs to be radically overhauled so as to stuff it with all sorts of things that have thus far been rejected.

The bill goes back to Parliament for a clause-by-clause reading on Monday and while there’s still third reading and Senate review to pass, its now or never to make sure that last ditch attempts by a few lobbyists to rewrite the bill never see the light of day.

What kind of stuff, you no doubt ask? Here’s just a partial list, culled mostly from the music and gaming industry lobbyists and like-minded legal advisors (see here and here):

1. Tough rules that could require intermediaries from ISPs through to search engines (e.g. Google), social networking sites (e.g. Facebook, Digg, Twitter) and data/web hosting sites (e.g. BlackSun and other ‘cloud’ providers) to block access to websites and others alleged to enable copyright infringement;
2. The substitution of a ‘notice and take-down’ and graduated response regime that would see ISPs disconnect subscribers accused of repeated infringement instead of the much less intrusive ‘notice-and-notice‘ regime already included in the bill and practiced as a matter of course by all of Canada’s major ISPs.
3. Claw backs to the innovative user-generated content (UGC) clause of the act that allows people to make mashups and remixes for non-commercial uses.
4. Copyright term extension from lifetime of the creator plus 50 years to life + 70 years.

The chances of any of these things being adopted is uncertain, but it needs to be stated clearly that any attempt to stuff the bill full of SOPA like provisions is a non-starter. For those not in the know, SOPA stands for the Stop Online Piracy Act in the US that gained so much notoriety earlier this year that its backers finally put a stake through its heart, at least for the time being, but only after an extraordinary outcry against the bill and after Wikipedia, Firefox, Google, and thousands of other sites went black for a day on January 18th, 2012.

SOPA would have required: (1) ISPs to block access to ‘rogue websites’, (2) search engines to make such sites disappear from their results, (3) payment providers like Paypal and Visa cut-off payments, (4) advertisers to cut-off suspect sites from advertising placement, etc. The fundamental remaking of the Internet such activities contemplated unleashed a firestorm of protest, in the US and globally, ultimately leading to a tactical withdrawal of SOPA. Yet as SOPA was being withdrawn in the US, the copyright maximalists here in Canada were on a roll and began pushing what looks like much of the same thing.

The first indication of this can be seen in the language used, with the copyright maximalists such as Barry Sookman, James Gannon, the Entertainment Software Association of Canada (p. 6) and the Canadian Federation of Musicians carving up the world into “good guys” and “bad guys”, backed by repeated references to “wealth destroyers”. This stuff is imported directly from copyright maximalists as Daniel Castro at the supposedly ‘non-partisan’ Information Technology and Innovation Foundation (ITIF) in the U.S. who referred to “parasites”, “rogues” and “leeches” to make his case for the ‘mother of SOPA’ early last year.

I’ve done this before but it bears repeating that the claims of wealth destruction are bogus. The trick is simple when it comes to the music industry, which in the present case has been bandying about a figure of $800 million dollar as having simply disappeared. That figure has been subsequently recycled by those on the committee, notably by Dean Del Mastro of the Conservatives, who stated on opening day, and drawing directly on the lobby group Music Canada:

“over $800 million a year [is] going missing. That’s coming right out of the pockets of artists, and that’s money that’s not being invested in this country (at 1645-50 in the transcripts).”

I have no idea where this figure has been tallied from, but it seems to be a magnification of already circumspect numbers that have been used in the past. The ruse in all this, as I’ve shown in earlier posts, is to take just one part of music industry revenues — recorded music sales (cds, LPs, etc.) — that really have suffered badly, i.e. dropping about $550 million (not $800m) in the past eight years, and then let this one segment stand for all revenues across the music industries as a whole. Looking at just the single category of recorded music industries, the situation does look dire, indeed, as the following diagram shows.

‘Recorded Music Industry’ Revenues in Canada, 1998 – 2010

The music business only appears to be in dire straits if we look at things from this cock-eyed view of the world. It looks entirely different when we include the recorded music segment and the three fastest growing segments of the business: (1) concerts; (2) internet and mobile phones; (3) publishing rights. Once we do that, the world looks entirely different, as the figure below shows:

‘Total Music Industry’ Revenues in Canada, 1998 – 2010

Source: Statistics Canada; PriceWaterhouseCooper; Socan.

And this is not just the case for the music industry, but the movie industry as well. Again, the following chart helps illustrate the point (If you can’t see the figure below, click here).

Source: MPAA (2011). Theatrical Market Statistics.

And again, as with the music industry, these figures for “Box Office Revenues” are only half the matter, actually a little less than half the matter. When we open our eyes wider to look at all revenue sources for the film industry, including pay-per view tv, cable and satellite channels, video rentals, rapidly declining dvd sales, and fast rising new areas such as online subscriptions and digital downloads, the picture changes dramatically.

Doing that, it is clear that the movie business is doing even better than the box office numbers suggest, rising sharply on worldwide basis from $46.5 billion in 1998 to $87.4 billion in 2010. Table 1 below shows the trend.

Table 1:  Worldwide Film Industry Revenues, 1998 – 2010 (US$ Millions)

	1998	2000	2004	2008	2009	2010*	Change %
Film	46,484	52,803	82,834	82,619	85,137	87,385	+ 88%

Sources: PriceWaterhouseCoopers (2010; 2009; 2003), Global Entertainment and Media Outlook.

The same case can be made for the electronic software and video gaming industries, the constituents of the Entertainment Software Association of Canada (ESAC) and their corporate lobbyists who have also been out their plying their trade, backed by similar dubious assertions.

The biggest problem with all of this is not the underlying faulty economics and total absence of meaningful evidence, but rather the complete bankruptcy of the lawyers and lobbyists peddling the case. They appear to have no moral compass when it comes to these matters and would just as easily turn ISPs, search engines and social networking sites into online gatekeepers working on their behalf as they’d toss their grandmothers overboard if she hacked a digital lock.

That their positions are indeed those of radical extremists can be seen by, for example, comparing them with other interests in the mainstream of business thinking, such as the Business Coalition for Balanced Copyright. The BCBC group represents most of the major ISPs in Canada (Bell, Rogers, Telus, SaskTel, MTS Allstream), Google, Yahoo, eBay,  and so forth.

Thus, whereas the ESA (p. 7), Canadian Federation of Musicians, Canadian Independent Music Association (pp. 8-9), and copyright lawyers like Sookman and Gannon, call for a “much stronger and enforceable” notice-and-takedown regime, and graduated responses that would require ISPs to disconnect internet users accused of repeatedly infringing copyright material, the Business Coalition for Balanced Copyright forcefully rejects “notice-and-takedown and graduated response policies, which would turn intermediaries into ‘copyright police'” (p. 6). The group also rejects such a role being imposed on other digital intermediaries such as Google and social media services.

This is not unusual. To its credit, one of the world’s largest telecom and internet gear manufacturers, Ericsson, makes the same case in perhaps even more expansive language. Indeed, while supporters claim that the “graduated response” and digital intermediary strategy have only a minimal impact on individual liberties (see here and here), a recent UN Internet & Human Rights minced no words when it argued exactly the opposite point of view:

“. . . [C]utting off users from Internet access, regardless of the justification provided, including on the grounds of violating intellectual property rights law, [is] disproportionate and thus a violation of article 19, paragraph 3, of the International Covenant on Civil and Political Rights” (p. 21).

As for the attempted claw back on user-generated content, once again we see the copyright maximalists as not just being out of step with others but so wedded to a restricted view of the world that they think that copyright law is all about them. Yet, as James Boyle observes in The Public Domain: Enclosing the Commons of the Mind (pp. 66-70), copyright sets out rights for creators and owners, on the one side, and users, readers and audiences to do as they please with media acquired legitimately, on the other.

From the blinkered, ego-centric position if the maximalists, it’s easy to understand the drive to extend copyright terms from life of the author plus fifty years to seventy, but why not in perpetuity? That they have not pursued this is mere capitulation to political reality versus any kind of principled stance.

Reading any of the above ‘copyright maximalists’ interventions one would be hard pressed to know that copyright law is about two sets of interests: copyright holders and media users. Thus, from the position of the ESA (p. 7), Canadian Federation of Musicians, Canadian Independent Music Association and copyright maximalist lawyers like Sookman and Gannon, the idea that the Copyright Modernization Act (Bill C-11, sec. 22) would carve out space for non-commercial user-generated content is completely unacceptable, akin to a tax, a subsidy, a sop thrown to the masses. It is not, it is simply recognizing that people have rights too.

Nowhere is this idea more evident than in the digital locks provisions of C-11. Indeed, whilst the bill contemplates some reasonable measures and in fact does acknowledge a new user right with the user created content provision, the fact of the matter is that the restrictions on tampering with digital locks effectively nullifies those rights. In other words, what the bill gives with one hand, it taketh away with the other.

Again, the Business Coalition for Balanced Copyright is much more onside in this matter than the content and entertainment industries. Indeed, they are emphatic that the greater articulation of user rights in the Bill is an advance, and that this is especially so with respect to the user created content right, but state equally emphatically that “the digital locks provisions render them illusory” (p. 4).

Ericsson stakes out a similar position, setting out three general principles that ought to govern whatever digital locks mechanisms that are used and backed by the force of law:

1. They should be “built on an interoperable set of proprietary standards or consist of DRM technologies that are based on open industry-wide standards;
2. “Must not limit individuals’ statutory right to make legal private copies of Music, Books and AV works;
3. “[C]ontract law and technical standards should not be allowed to override statutory exceptions such a fair use regime or private copy exemptions, thereby limiting the availability of lawfully acquired content to format or device shift within the scope of the private sphere” (p. 6).

My point in all this is not to make a fetish out of those who make, own and run the pipes that make up the Internet and the networked, digital public sphere. Instead, it is to highlight some of the mainstream currents of thinking on the issues at hand and to highlight those who are now trying to stuff Bill C-11 with SOPA-stlye restrictions that will gut the Internet for what they are: radical extremists, and well in the minority.

The Anatomy of Internet Service Provider Responsibility: Three-Strikes Copyright Law Comes to New Zealand

Changes in copyright laws are changing the Internet and how people use it around the world. This has become increasingly so since 2008, when the Recording Industry Association of America (RIAA) and International Federation of Phonographic Industries (IFPI ) set on a quest to make “ISP and intermediary responsibility” the law of the land in one country after another.

The idea that ISPs should be legally required to block access to websites that facilitate illegal downloading and file sharing as well as cut-off the Internet connections of those who use such sites is not a new idea but one that has been around since the 1990s, but politically impossible to implement. Now, however, as the IPFI states approvingly in its 2010 Digital Music Report, “the mood of change is clearly reaching governments” (p. 3).

Indeed it has. Since the IPFI and RIAA began their worldwide drive, Britain, France, Sweden, Australia, Ireland, South Korea and Taiwan have all adopted new copyright laws in which “intermediary responsibility” and three strikes rules play a starring role. These issues are currently coming to a head in the U.S., where Congress is considering two bills that would extend intermediary responsibility well beyond ISPs, websites and hosting services to include advertisers, search engines and financial intermediaries (i.e. banks and online payment services): the Protect IP and Stop Online Privacy acts.

The most recent convert to the copyright maximalist faith is New Zealand. Its new Copyright (Infringing File Sharing) Regulations, 2011 kicked into gear in September. It’s core features include a three-strikes law that sets out a sequence of progressively more punishing measures: notices, the possibility of a fine of up to $15,000 for repeat offences, and cutting off the Internet accounts of repeat infringers.

In the past few weeks, the Recording Industry Association of New Zealand (RIANZ) delivered its first batch of notices of infringement to four of the biggest ISPs in the country: Telecom, Vodafone, Orcon and TelstraClear. They’ll be sent to Internet subscribers as soon as the ISPs sort out who has to pay what for the delivery service.

The notices target 75 IP addresses on behalf of Universal Music, but one serious question in this is just who does an IP addresses belong to: individuals, a household, an office, or some other unit of organization? Until this issue is cleared up, whole households risk being removed from the Internet on account of one person in it who has run afoul of laws governing just one aspect of life online.

Yet before Universal Music and the RIANZ entered the scene, New Zealand’s ISPs had already noticed something else: a steep drop in international peer-to-peer Internet traffic. It was like somebody clamped down on the country’s Internet connection to the outside world.

Orcon — one of the major ISPs involved — noted that its international p2p Internet traffic had fallen by ten percent. As the second biggest type of data traffic behind streaming video from websites like YouTube, the decline in p2p Internet traffic has been significant.

This is not the first time this has happened, and some argue that it is a recurring and expected pattern. When Sweden implemented its new Intellectual Property Rights Enforcement Directive (IPRED) in April 2009 Internet traffic plunged thirty percent overnight (see here). The outcome left Swedish copyright lawyer Henrik Pontén delighted:

“The majority of all internet traffic is file sharing, which is why nothing other than the new IPRED law can explain this major drop in traffic . . . . This sends a very strong signal that the legislation works”.

Indeed, from the view of the music and entertainment industries, “virtually all P2P content is illegal”, as the IFPI baldly declares in its most recent Digital Music Report, (p. 14). Therefore, suppressing it is both justifiable and a deliberate aim of the new copyright rules. As New Zealand’s Ministry of Economic Development put it, the new law is all about “stopping illegal peer-to-peer file sharing such as sharing movies via BitTorrent”.

Supporters of this approach argue that the ‘graduated response’ approach to piracy achieves its goals “without unduly impacting individual liberties”. The majority of Internet users stop infringing after receiving notices from their ISPs (see here)

These are deeply problematic claims, however. Among other things, they blithely ignore the fact that p2p serves many other purposes than just facilitating traffic in ill-gotten media content.

To take just a few examples, the band Nine Inch Nails uses p2p to offer free downloads of their music. Akamai uses it to create ‘content distribution networks’ for entities like Netflix, Facebook and Amazon that run parallel to the Internet so as to relieve congestion on the telecoms carriers and ISPs networks. The CBC used it in 2008 to deliver an episode of  Canada’s Next Great Prime Minister via BitTorrent; the BBC still uses it for its iPlayer service.

P2P also underpins ancient pre-web 1.0 Internet functions such as Internet Relay Chat, the nasty bits of 4chan, and the privacy enhancing, authoritarian-fighting Tor protocol that has been used in the “Arab Uprising” and by the hacktivist group, Anonymous, alike. In the olden days, media content regulation was seen as more heavy-handed and less respectful to free speech concerns than structural rules that applied equally to all; today, app-specific regulation that deliberately targets specific Internet uses now stand in a similar place in relation to free speech and other democratic values.

App-specific regulation is destined to be fraught with overkill.  While their supporters claim that the “graduated response” and digital intermediary strategy have only a minimal impact on individual liberties (see here and here), a recent UN Internet & Human Rights minced no words when it argued exactly the opposite point of view:

“. . . [C]utting off users from Internet access, regardless of the justification provided, including on the grounds of violating intellectual property rights law, [is] disproportionate and thus a violation of article 19, paragraph 3, of the International Covenant on Civil and Political Rights” (p. 21).

Article 19, by the way, is the article setting out freedom of opinion and expression rights.

Beyond multiple uses of p2p, and freedom of expression values, others raise an economic argument to the effect that RIAA/IFPI-style copyright laws are broadband Internet development killers. Ericsson’s resident intellectual and policy wonk, Renee Summer, made this point in regards to New Zealand’s plans, warning that “the new rules could slow down consumer demand on the Government’s ultra-fast broadband network”. The point was also made with respect to Sweden back in 2009, when John Karlung of the ISP, Banhof, made the connection this way:

“Half the Internet is gone. If this pattern keeps up, it means the extensive broadband network we’ve built will lose its significance.”

The idea that new copyright laws are broadband Internet killers is appealing yet it may be too early to reach this conclusion because most countries have not carefully tracked the impact. Moreover, the Swedish case muddies the waters because a half-year after the new law was introduced, traffic levels climbed back to their original levels.

Whether this was because people simply returned to their old ways or the steep rise in bandwidth hungry TV and entertainment content (e.g. Netflix, LoveFilm, etc.) being delivered online is still an open question. Yet in all cases, significant changes had occurred nonetheless.

First, ISPs are now in the business of regulating information flows and user behaviours, rather than being neutral points of access to the Internet. Second, people modified their Internet use, adopting a slate of new tools — encryption, anonymity, and other means of circumventing the new rules – that reflected a tilt away from the open Internet towards a more closed system.

Changing people’s behaviour is not too be taken lightly and moving control from the edges of the Internet and putting it deeper into its central nodes by way of ISPs and an expanding array of intermediaries is no more palatable in the 21st century than fifteen years ago when first trotted out in the teeth of fierce resistance. Thus, we need to look beyond the careful stage-managed introduction of new copyright rules to carefully assess their impact on the Internet and the ever-widening range of what we do online.

Today, all eyes should be on New Zealand.

The Copyright Modernization Act (C-11), Digital Locks and turning ISPs into Gatekeepers One Step at a Time

For the fourth time in six years, new copyright legislation was introduced last month and debated in Parliament this week.  The proposed new Copyright Modernization Act (Bill C-11) is a word-for-word rendition of the last bill that died when the election was called, except for a few important tweaks (see below).

The bill, in fact, has much to commend it. It holds the line steady on the length of copyright protection at the lifetime of the author plus fifty years, rather than wildly extending it for up to 150 years, as in the United States.

It also recognizes new user rights, including the ability to swap content we already own across the devices we use, such as smartphones, tv screens, computers, tablets, and so on. So, yes, according to C – 11, take the music or episode of The Wire you bought online and burn a copy to watch on your telly. People can also copy legally-owned content for their own personal, non-commercial use, and for safe-keeping (section 29).

The most cutting-edge innovation is the nod given to the do-it-yourself culture of mass expression. People will be able to rip, mix and burn snippets of media content in order to create their own non-commercial parodies, satire, mash-ups, and Youtube clips.

The biggest problem is that these new rights are trumped by the sanctity given to digital locks in Bill C-11. Sure, do all of the things the new law permits until your heart’s content, but only if you do “not circumvent . . . a technological protection measure”. TPMs are inviolate, as the entirety of section 42 makes painstakingly clear.

This is the triumph of technology and contracts over human will and communication rights. Critics are right to single it out. It is hard to imagine the bill being salvageable without this ordering of things being seriously revamped.

That the Conservatives have consulted closely, and secretively, with Washington to design this bill is also problematic (see here and here). The book-burning clause requiring students to destroy copyright-protected, online components of course they take thirty days after receiving their final grade is plain dumb (section 30(5)).

Yet, there is another feature that needs higher billing than it has so far received: Notice and Notice rules that will require all ISPs to pass on notices from copyright holders to subscribers alleged to be illicitly downloading and sharing copyright protected content online. ISPs will also be required to retain records for six months that allow the identity of the subscriber to be established and disclosed if things end up in court (sec. 41.26b).

The requirement to retain subscriber information is new. The notice and notice regime, however, is not. Telus, for instance, already forwards 75,000 notices every month on behalf of copyright claimants on average.

In fact, all major Canadian ISPs – Bell, Shaw, Rogers, Quebercor (QMI), Telus and Cogeco – voluntarily agreed with the recorded music industry a decade ago to perform such a function — for free. Such a role is hidden in plain sight in each of their Terms of Service agreements (see here and here).

The publishing, software and movie industries have been the most frequent users of the voluntary notice-and-notice regime in recent years, while the recorded music industries have moved on to pursue a more ambitions agenda since 2008: new laws that require digital intermediaries – ISPs, search companies (Google), data centres — to block access to blacklisted URLs and, for ISPs to take the drastic step of cutting off the Internet connections of repeat infringers.

These approaches are known as the “graduated response” and “three-strikes” regimes. The Recording Industry Association of America (RIAA) and International Federation of Phonographic Industries (IFPI), working in tandem with their local offshoots, have been remarkably successful in having them translated into real-world laws in one country after another: Australia, Britain, France, Ireland, New Zealand and Taiwan, amongst others.

This agenda has not yet succeeded in the United States, however, although the push to make it so is relentless.  The terrain is not terra nulles, however, and all of the biggest U.S. ISPs – Comcast, Verizon, AT&T, Time Warner, Cablevision, etc. – signed a deal last summer with the big four music companies (EMI, Sony, Universal, Warner Bros.) and Hollywood studios (Disney, Viacom, Time Warner, News Corp., Universal, Sony) that will see them take on the notice and notice procedures and possibly some additional measures voluntarily.

The agreement is colloquially known as the “six-strikes-and-we’ll-see” approach because the higher level deterrents are seldomly used. Nonetheless, some worry that the push will be to steadily ratchet the levels of control enacted by ISPs to ever-higher levels.

The notice and notice regime contemplated by the Copyright Modernization Act is stricter than the approach arrived at in the United States. However, it is far less punitive than the “three strikes” and “graduated response” measures adopted by France, the UK, New Zealand and Ireland, among others, in recent years.

The Conservative Government’s decision to reject the three-strikes approach delivers a clear set-back to the recorded music industries’ policy agenda. More importantly, however, it comports well with a recent UN Internet & Human Rights report that emphatically states that “cutting-off users from Internet access . . . on the grounds of violating intellectual property rights law . . . is disproportionate and . . .a violation of . . . the International Covenant on Civil and Political Rights (p. 21).

Nonetheless, C-11 is problematic insofar that it takes a voluntary deal cooperatively arrived at among Canada’s incumbent telecom and cable companies and applies it to the rest of the 400-500 smaller ISPs that exist in the nooks and crannies of the Canadian ISP market. The new law will force small ISPs to assume roles that most have rejected, and which some oppose on privacy, information rights, and freedom of expression grounds.

Second, the new bill mandates that all ISPs retain data for six months and to disclose the identity of Internet subscribers under court order. This is a new element introduced by the legislation over and above the current voluntary arrangements. For those who believe that the goal should be to minimize, rather to increase, the collection and retention of subscriber data, this is problematic.

Third, as the Chilling Effects Clearinghouse and the Electronic Frontier Foundation’s Take-Down Hall of Shame in the U.S. illustrate, copyright claimants frequently launch claims based on broader assertions than the law permits. Removing the hurdle of a court order essentially permits copyright claimants to take a shotgun approach that captures far more than what it legally required. The chilling effect on free expression is considerable since many people stop whatever they were doing when sent a notice of alleged copyright infringement rather than wander on to uncertain terrain.

Because copyright holders groups strongly oppose the suite of user rights outlined above – to make back-up copies, create User Generated Content (UGC), swap content across devices, etc. –  they will work very hard to have these rights defined as narrowly as possible. A legally mandated notice and notice regime will serve them well.

C-11 will not turn ISPs and other digital intermediaries into gatekeepers on its own. Translating the voluntary agreements that Canada’s biggest vertically-integrated telecom-media-Internet conglomerates — Bell, Shaw, Rogers, QMI, Cogeco — have made with the music industries into the law of the land, however, will only tilt the bias further yet toward a more net-centric model of control. Extending these methods — plus new data retention and disclosure mechanisms — to all ISPs will compound the problem.

The dominant  telecom-media-Internet players have already demonstrated their capacity to discriminate in favour of their own content and services. In addition, their use of DPI (deep-packet inspection) technologies is already very high relative to global standards (see here). I see no reason to give either them or the copyright holders groups yet even more incentives that will only bolster their pursuit of network-centric models of control and perpetual copyright.

Seen in this context, digital locks are important but the possibility that notice and notice will become the law of the land deserves far more scrutiny than it has thus far seen.

Should ISPs Enforce Copyright? An Interview with Prof. Robin Mansell on the UK Case

Should Internet Service Providers (ISPs) be legally required to block access to websites that facilitate illegal downloading and file sharing sites or cut off the Internet connections of those who use such sites?

In Canada, the answer is no, and recently proposed legislation expected to be re-introduced soon, Bill C-32, the Copyright Modernization Act, would not change this state of affairs, despite all the other flaws that it might have (see here for an earlier post on the proposed new law).

That’s not the case in a growing number of countries, notably the United Kingdom, New Zealand, France, South Korea, Australia, Sweden and Taiwan. Indeed, after pushing hard for the past decade to get stronger, broader and longer copyright laws passed, as well as using digital rights management to lock content to specific devices, in 2008 the IFPI (International Federation of Phonographic Industries) and the RIAA (Recorded Industry Association of America) turned to giving first priority to the idea that ISPs should be legally required to block ‘rogue websites’ and adopt “three strikes you’re out measures” that cut off the accounts of Internet users accused repeatedly of illicitly downloading and sharing copyright protected content online.

While not formally required by law to do so, Canadian ISPs such as Bell, Rogers, Shaw, Cogeco, Telus, Quebecor, etc. have agreements with the recorded music industries and other “copyright industries” to disable access to illicit sites. Moreover, the Terms of Service/Acceptable Use Policies explicitly state that they reserve the right to do just this.

Exactly what the conditions are, and how often they are use, well, who knows? The arrangements, as I just said, are informal — something of a blackhole rather than an open Internet, essentially.

As Rogers Acceptable User Agreement explicitly states, for example:

“Rogers reserves the right to move, remove or refuse to post any content, in whole or in part, that it, in its sole discretion, decides   . . . violates the privacy rights or intellectual property rights of others” (“Unlawful and Inappropriate Content” clause”. (also see Bell’s Acceptable User Policy, p. 1)

So, it is not that Canada is some kind of “free Internet” zone, but rather one where there terms are set privately by ISPs (our major TMI conglomerates) and the “content industries”. This seems like a really bad idea to me.

The UK adopted an even worse approach, however, by giving such measures the force of law when it passed the Digital Economy Act in 2010, a law that was sped through Parliament in near-record time (i.e. 2 hours debate) after incredible levels of lobbying from the music, film and broadcasting industries (see here). Two major ISPs in the UK, however, BT and TalkTalk, have fought these measures tooth and nail, but have suffered a series of defeats in the courts.

I recently spoke with Professor Robin Mansell, who took part in these proceedings as an expert witness on behalf of BT and TalkTalk. Her experience sheds much light on the potential impact of these measures on the evolution of the Internet and Internet users. I also asked her about the tricky role of academics in such cases, given that being an expert witness essentially bars you from discussing details of the case, a position that obviously clashes with academics’ obligation to make knowledge public.

Professor Mansell is a Canadian who completed her Ph.D. at Simon Fraser University. She is a Professor of New Media and the Internet at the London School of Economics, where she was Head of the Media and Communications Department (2006-2009). She has been a leading contributor to policy debates about the Internet, the Information Society, and new information and communication technologies. She was also President of the International Association for Media and Communication Research (IAMCR) (2004-2008) and has served as a consultant to many UN agencies as well as the World Bank. You can learn more about her here.

Although the Court of Appeals rejected BT and TalkTalk’s challenge to the Digital Economy Act in June, several other developments in the UK since May have kept the issues on a high boil and still unresolved:

1. The Hargreaves Report published in May was scathing of the lack of evidence underlying the development of copyright policies, and how “lobbynomics” rather than evidence has been driving the policy agenda (for an earlier blog post on the report, see here);
2. Another High Court decision in July required BT and other ISPs to block access to the site Newzbin;
3. The Government decided to adopt all of the proposals in the Hargreaves Report in August;
4. The measures in the Digital Economy Act requiring ISPs to block illegal file-sharing sites were put on hold in August after a report by the British telecom and media regulator, Ofcom, found that the measures would be unworkable (also here).

Dwayne: How did you become an expert witness in the BT/TalkTalk challenge to the Digital Economy Act? And who was backing the adoption of these measures?

Professor Mansell: I was invited by BT’s Legal Division to do so.  They came to me on the recommendation of another academic who was serving as an advisor to the regulator, Ofcom, and so could not do it for conflict of interest reasons.  They also invited Prof. W. Edward Steinmueller, University of Sussex, to work with me, since he is formally trained as an economist and could take on the ‘copyright economist’ from the US who was expected to appear on behalf of the creative industry actors who have pushed so hard for the law.

The key players arrayed against BT and TalkTalk, in addition to the Government, included the following members of the ‘creative industries’: the British Recorded Music Industry Association, the British Video Association, the Broadcasting Entertainment Cinematograph and Theatre Union, Film Distributors Association, Footabll Assocation Premier League, Motion Picture Association, the Musicians Association, Producers Alliance for Cinema and Television and Unite. The Open Rights Group, somewhat similar to Open Media in Canada, also filed an intervention that, essentially, supported BT and TalkTalk’s position, but from a basis steeped more in open Internet values rather mainly business considerations.

I have training in economics, but no formal degree as mine are in Communication (Political Economy) and Social Psychology.  As far as we know we were the only academics hired by BT/TalkTalk to participate in the High Court Judicial Review of the Digital Economy Act (DEA) 2010.

We realised we would be bound by confidentiality once we signed on.  In the UK, our initial report challenging the measures set out in the Act came into the public domain after the judgement, but not the evidence submitted by the creative industry players against the BT/TalkTalk case or our rebuttal to that.

We had both worked and published on issues of copyright before and felt that there was a chance that the Judge might rescind the Act – a small one, but we thought it worth trying. This was the only way we could see that the provisions of the Act might be overturned since it had got on the books in the last days of previous Labour Government.

In the event, the Judge decided that the DEA should be implemented for two main reasons 1) there is no empirical evidence of what its impact will be from anyone’s perspective – just claims and counterclaims; 2) it is for Parliament to decide how copyright legislation balances the interests of the industry and of consumer/citizens, not for the courts.  BT/TalkTalk appealed the decision and lost again.

Dwayne: What implications does the most recent court set-back have for principles of open networks/network neutrality, copyright, privacy and user created content (UCC)?

Robin: The central issue in this case was whether the ‘graduated response’, or ‘three strikes you are out’, strategy being lobbied for by the creative industries to curtail online P2P file-sharing that infringes copyright is a disproportionate response to file-sharing practices that are ubiquitous.  Another issue was also whether the implementation of the measures by ISPs (with a court order) is likely to have a chilling effect on the way people use the Internet.

From the copyright industry point of view, the central issue was whether the government and ISPs would support their argument that this strategy is essential to their ability to stem the losses they are experiencing in the music, film and broadcast programming sectors which they attribute to infringing downloading by individual users – and more importantly to enable them to recover the lost revenues, or at least some of them. The creative industries players argued that it was essential for ISPs to play an active role in stemming the tide of copyright infringement.

The bigger issue of course is whether P2P file sharing is simply indicative of one of many ways in which Internet users are finding creative ways of producing and sharing online content in a ‘remix’ culture where the norms and standards for good behaviour online have changed enormously and with little evident regard amongst some Internet users for existing copyright provisions. In the face of these changes, the incumbent creative industry companies are seeking ways of extending their control over the use of copyrighted digital information in many ways, just one of which is stronger enforcement of copyright legislation which currently makes it illegal to copy even for non-commercial purposes of private use and creates a narrow window for licensing for educational use.

BT/TalkTalk framed the issues mainly in terms of the threat to their own business interests in terms of reputational and financial costs if they are required to divulge the names of their subscribers to the creative industry firms (albeit with a court order) when they are accused of infringing copyright.

We framed the issues in four ways:

1. the disproportionality of the DEA response in light of changing social norms and behaviours online which means that there is little if any evidence that the threat of punishment will change online behaviour;
2. the disproportionality of the response because it sets a wide net that is very likely to encompass those who use ISP subscribers’ access to the Internet (family, friends, users at work, in public places, etc.) for purposes of which the subscribers themselves have no knowledge;
3. the lack of disinterested evidence on industry losses and revenue recovery since all the quantitative evidence is based on creative industry data or on studies which are flawed in terms of methodology; and
4. the implications for trust and privacy when Internet users are being monitored for this purpose.

In this specific case, the arguments did not tip over into debates about network neutrality, but they easily could have. The techniques that are used to monitor subscriber online activity go in the direction of the same deep packet inspection techniques that also enable ISPs to discriminate among different types of Internet traffic.

However in this case, they were only being asked to provide subscriber information based on the monitoring performed by firms hired by the copyright industry firms themselves to monitor spikes in volume and the sites from which downloading occurs. This doesn’t go directly to what ISPs themselves are doing or not doing with respect to monitoring types of traffic, so technically isn’t about network neutrality. The ultimate effect, however, is not all that dissimilar.

Dwayne: You have mentioned for two years running now during talks at IAMCR that the role of ‘expert witness’ is a double-edged one, on the one hand allowing scholars a seat directly at the table while on the other hedging about the scholar’s role with all kinds of requirements about the nature of the facts and evidence that can be submitted, non-disclosure agreements, etc.

Can you elaborate a bit more on this conundrum? What would be your advice to those torn between the ‘expert witness’ and ‘activist’ scholar role?

Professor Mansell: This issue is always on my mind!  The role of an ‘expert witness’ in a court case can vary a lot depending on the jurisdiction. In the UK you can end up knowing quite a lot more as a result, but you also cannot write about it in an academic way because you cannot cite the sources which remain confidential even after the case is over. After the case is over of course you can argue as you wish retrospectively, but then ‘the horse has left the barn’.

Another issue is the problem of what counts as evidence.  The courts look for some kind of irrefutable quantitative evidence. Failing that they look for persuasive theoretical arguments about how the world ‘might be’, overlooking the unrealistic assumptions about how economic incentives work in the market or they look for generalisations from fairly flimsy empirical studies about what mainly US college student report about their own copyright infringing behaviour and future intentions.

The problem for the ‘expert witness’ is that while it is possible to refute the assumptions of theory and poorly conceived methodologies, it is not possible (usually) to present quantitative empirical evidence that is any more robust because it simply doesn’t exist.  It is possible to present good arguments (based on political economy, sociological or cultural analysis of changing norms, market structures and dominant interests, and power relations).  But if you know that the Judge is likely to be persuaded mainly by the economics arguments, one is not going to get very far.

Thus, the question arises as to why enter the fray in the first place? Why not work as an activist or work as an academic to influence the policy makers directly before the legislation gets on the books?

Both routes are needed, but time constraints often mean that they are hard to achieve in a consistent way.  And of course interacting continuously with policy makers raises its own challenges.  Not the least of these is that if they are setting the agenda and are already echoing the prevailing view that the balancing of interests in copyright protection is clear and unproblematic. It is a real uphill battle to depart from this view – and a strong likelihood that the door to the room or corridor where policy decisions are made will be shut.

In the case of copyright enforcement and the UK judicial review of the DEA, there are critical scholars in the community who could have been taken on by BT/TalkTalk and who are likely to have promoted the view that the whole of the copyright regime needs to be dismantled in favour of an open commons; they were not invited to participate by those setting the terms of engagement.

The Open Rights Group did participate in the judicial review as an intervener and their argument was quoted by the Judge, but this didn’t alter his view it seems.  In terms of the academic evidence, he basically said that this was a complex issue which should not be put before the courts.

Dwayne: The Court dismissed the challenge to the Digital Economy Act, finding that it was entirely within the purview of the UK Parliament to pass laws of this kind and to strike the balance between the competing interests in the way that it did. You described this as a total loss. Can you explain why and what the implications might be?

Professor Mansell: I think I said this because the Government claimed that the DEA is aimed at balancing legitimate uses of the Internet and freedom of expression against the costs of implementing technical sanctions against Internet users, assuming authorisation by the courts.

The Court accepted our argument about the ambiguity of the results of empirical studies of online user intentions and behaviours with respect to copyright infringement. It also accepted the argument that Internet users may take steps to avoid legal liability resulting in a chilling effect on the development of the Internet. But, it did not accept that such an effect would exceed the benefits of enhanced copyright protection.

Ultimately, it left it to Parliament to decide the appropriate weighing of the interests of the creative industries and Internet users, which the Government claims has already been done in the legislation.  So we go round and round …  the DEA enforcement legislation goes ahead and the copyright legislation it is designed to enforce stays in place – a ‘total loss’ (for now till the next round).

Meanwhile the creative industries as we know are experimenting with all sorts of new business models in their bid to change the way they raise revenues through the provision of digital content.  Perhaps the shear pressure of mass Internet user activity and infringing downloading will eventually give rise to fairer models – we can wait for this to happen, but it is a shame that the rights of these users are likely to be infringed and some will be punished for behaviour that one day may be seen as entirely appropriate and even welcomed!

We argued, that in light of uncertainty about the direction of change in social norms and behaviour online, legislation that seeks to suppress P2P file-sharing by bringing legal actions against individual infringers is likely to disrupt, or alter the course of, Internet development in ways that cannot be assumed to be benign. The evidence favours the interests of the rights holders and the interests of those engaging in infringing file-sharing are downplayed or excluded. This cannot be said to be a proportionate response to the incidence of infringing file-sharing.

Since the judicial review, an independent report commissioned by the Prime Minister (The Hargreaves Report) has emphasised the need for change favouring better access to orphaned works subject to copyright and copying for private and research purposes and greater emphasis on the impact of legislation on non-rights holders and consumers.  But, it still says that the DEA provisions for the ‘graduated response/three strikes you are out’ should go ahead until such time as there may be evidence that it is not working.  Again, the harms will already have occurred even if evidence shows that the measures are not working the way the industry claims they will and Internet users continue their infringing downloading activity.

Dwayne: Last question, Robin. Do you think that the recent moves by the UK government to adopt the Hargreaves Report in whole and to put aside ISP blocking requirements change the picture?

Professor Mansell: There is a difference between the provisions in the DEA to go after individual file sharers through the ‘Graduated Response’ tactic, which is going ahead, and the concerns expressed by ministers as to whether they can get ISPs to take down the big enabling sites.  My understanding is that is the issue under discussion.

Some of the other Hargreaves recommendations may well start to go ahead – we will see how quickly, but they do not go to the specific issue of using ISPs to help bring charges against individuals.  



Big, Brash & Bold: Drop all Telecom-Media Foreign Ownership Limits

A new report by the CD Howe Institute came out today. It’s not big, just 3 pages and seemingly informed by a bunch of guys sitting around a table at the Howe’s ‘inaugural meeting’ last week (June 17).

It is brash, and some might dress it up as bold: drop all limits on ownership of telecoms and media industries in Canada, it says. Full stop.

No phase out. No ‘newcomer advantages’, full stop again. No attempt to separate the ‘medium’ (wires, spectrum, sewer access) and the message (broadcasting, integrated suite of ‘content’ from mags to blogs) from one another. A digital free for all, you might say.

Perhaps the gentlemen, and they were with the exception of only a single woman, thought this might be a good idea while they sat around and chatted last Friday afternoon. Apparently, there were not so many women ‘law & economics’ types available to join them, given that all but out of the 16 places apparently went to the guys and boys from Bell (see below). I guess ‘law and economics’ types like Sheridan Scott, a hard liner in these matters, and Monica Auer, who generally takes the opposite tack by speaking eloquently and passionately on the telecom and media workers’ behalf, weren’t available, or any of the other smart dames roaming these circles as I saw, in the minority, at the CRTC’s hearings this week.

I looked at the composition of ‘the deciders’ not just because their gender was so obviously skewed, but because I recognized the names of most of the guys. One in particular leapt out, Jeffrey Church, a University of Calgary economics professor. By all accounts, he’s an excellent teacher. Professor Church caught my eye because, in addition to advising the ‘big 3Ps’ in Canada as I’ll call them — Petroleum, Alberta Beef Producers, Pharma — Professor Church just wrote an economic analysis for Bell as part of the very, very important vertically-integrated telecom-media-Internet hearings now being held by the CRTC.

According to Church in his voluminous 93 page submission on Bell’s behalf, vertical integration is good for consumers and for Canada (p.5). I disagree, strongly, for reasons set out regularly in this blog (e.g. here) and my column for the Globe and Mail on Monday.

It’s not just Church that is so closely tied to Bell, but also Marcel Boyer, Bell Canada Professor Emeritus of Industrial Economics, Université de Montréal, as the CD Howe report indicates on the back of this slim 3 page ‘report’. 2 out of 16 does not a majority make, obviously, but their presence does stand out.

The rest of the lot in this ‘law and economics’ crowd does not seem very adventuresome, either. I know one professor occupying a BCE endowed chair that won’t be called upon, Professor Robert E. Babe at the University of Western Ontario, for he has traced the propensity of telecoms historically to go from limited competition to ‘total consolidation’ on a regular basis.  Let us say that the fact that Howe ‘report’ has zero to say about such notions is not all that surprising.

The 3 page ‘report’ is candid that dropping the foreign ownership limits on everything — telecom, media, internet — will not increase the number of competitors in the market. As it states, “given the small size of the Canadian market, the consensus view saw no major change in the number of national competitors”.

Translation, the big three companies in wireless telecoms — Bell, Rogers, Telus — for instance will still account for about 94% of the market (according to CWTA 2010), but they might be owned by yet a larger foreign based telco (Vertizon, the ‘new’ AT&T, Deutsche Telekom, etc.) or may private equity funds. Me, I have doubts many foreign investors — telcos, priv equity funds, banks — will even come if permitted to do so (or if we want ’em to on such ‘carte blanche’ terms). I’m not alone on this, and hardly radical, given that even the World Bank states that the keys to effective foreign ownership is a ‘strong state’ able to regulate and competition.

Instead, the Council of 15 wise men and 1 smart woman says, drawing on newfangled theory about ‘competitive innovation’ drawn from the right-wing side of Schumpeterian ‘innovation economics’, that “the gains from liberalization would likely result . . . from better performance by telecommunications market participants”. Umm, I hope so, especially because its this same crowd breying for the withdrawal of any meaningful conception of regulation or state intervention. The CRTC’s horizons have been blinkered and public ventures like CANARIE have had their wings clipped. How foreign capital will ‘improve’ performance standards in Canada is not clear to me/self-evident.

The report advocates this ‘regulatory shock and awe’ to be developed in one swell swoop, with no distinctions kept between telecoms and broadcasting, between networks and content, between incumbents and newcomers. The telecom-media-Internet sectors are now so entangled on account of digitization and how people use media that they must be treated together as a whole. Partial agreement there about treating things ‘holistically’.

More targetted measures are suggested as alternative to foreign ownership for whatever “cultural policies” might be left over. Some of these ‘targetted measures’ I believe in — securing financing for content production, shelf space, strong CBC — and they have been promoted by at least two of the same writers involved in today’s 3 page missive (e.g. see Hunter and Iacobucci, with a third author Michael J. Trebilcock).

There are several problems with this “report”, however, that make it’s contribution to public discussion dubious, despite the fact that it will gain much attention.

1. Three pages is not a report and should not be pitched as one.

2. The Council of the Wise is skewed along lines suggested above, ie. by Bell and by Gender. Bell has always had a visible hand in the telecom, broadcasting and media industries, indeed, since it began broadcasting speeches, songs and sermons in the 1880s and took-over the Chairmanship of the 1905 Mulock Commission which had originally been convened to look into the underdevelopment of the telephone system in Canada in the early days of the 20th century.

So, that Bell continues to be front and centre 100 years later, at the dawn of the 21st century, is both a marker of continuity and somewhat unsurprising, but equally suspect/problematic in each of these occasions. The presence of Bell’s hired gun (Church), a Bell sponsored ‘academic chair’ (emeritus, Boyer), and BCE CEO George Cope’s speech at the C.D. Howe two months ago all so bunched up in time and common stance has a whiff of something not quite right about it.

3. While I don’t actually have many problems with increasing competition and dissolving lines between the medium and the message, or the network infrastructure and content, we also need to be upfront about the fact that the former (media infrastructure) are generally scarce and the latter (messages) abundant. In today’s OECD Communication Outlook 2011, it is clear that, generally speaking, the top 2 ‘netcos’ in each of the OECD countries account for between two-thirds and three quarters of fixed and mobile telecom network markets in each of the OECD countries (pp. 56-59). This means:

• that Netcos generally should be regulated for market power, ‘messagcos’ generally not.
• ties between Netcos and Messagcos are congenitally fraught with problems and propensity for anti-competitive behaviour.
• Free speech standards and the values of a ‘networked free press‘ are also at play (and here). As the United Nation’s Human Rights Council recently stated, those standards apply to the Internet and people should have, as Article 19 of the Universal Declaration of the Rights stated before it in 1948, the freedom to receive and impart any information, through any media regardless of frontiers. At the CRTC Hearings on vertical integration the other day, Bell’s Mirko Bibic and Shaw’s brass called the idea that people should have access to any content on any device “preposterous”. The C.D. Howe ‘report’ is oblivious to these considerations.

4. The C.D. Howe report misses reality and the ‘big picture’. Perhaps this is because there is not a whiff of heterodox thinking among the ‘law & economics’ experts who wrote it. Not one ‘ecclectic’ economists, not one wild eyed, crazy lawyer, not a communication and media scholars or a historian in sight.

This is too bad because as long as it continues to be the case, people will continue to talk past one another. And it also means that ‘reports’ like this one, and the policies and approaches that actually do follow close in tow in the ‘real world’, will lack legitimacy.

5. Without being able to expand their horizon, the authors of the C.D. Howe ‘report’ blithely countenance “North American integration”. Economically, as I said above, I don’t have a particular problem with that, although I doubt that things will pan out as they expect, and even that what the Howe folks do expect ain’t much (“better performance” from same number of players).

Politically and culturally, however, there is a problem, not with Cancon and ‘traditionalist/romanticist’ conceptions of culture, but ‘network culture’. Netcos and search engines are now closely allied with state security, military strategy and defense contractors.  It’s probably best to keep some clear blue water between these domains. The authors give no hint that they have even thought of this.

Netcos, ISPs, search engines, etc. are also constantly being badgered by lobbyists as well as politicians in Canada and the U.S. to play a greater role on behalf of  media and entertainment industries (for most recent and strong opposition to this from within just the mainstream’, see here). The approaches have differed, with the last government in Canada wisely turning down lobbyists push to have ISPs play the role of ‘copyright cop’, disconnecting people who repeatedly are identified as ‘copyright bandits’.

The International Federation of Phonographic Industries (IFPI) launched it’s efforts to lean hard on ISPs and search engines, and less on Digital Rights Management (DRM), in 2008. It has been picking off ‘wins’ for this agenda around the world, but not so much yet in Canada.

Yesterday, CNet journalist Greg Sandoval reported that AT&T, Comcast, and Verizon “are closer than ever to striking a deal with media and entertainment companies that would call for them to establish new and tougher punishments for customers who refuse to stop using their networks to pirate films, music and other intellectual property”.  That turn-of-heart, in turn, he reports, was eased by coaxing from the Obama Administration and the National Cable TV Association.

The pressure is already strong in Canada, but so far government and regulators have refused to make ISPs the deputies of the media and entertainment industries or to regulate the Internet as a broadcast distribution medium. On law and order, however, the push is for a stronger state and more compliant Netcos and Searchcos.

While there’s lots of dots to connect between all of these latter points, the key idea is that integration at the network and market levels is going to increase pressure to harmonize tougher matters that impinge greatly on network media, and thus network culture. That the blokes and one women from C.D. Howe have nary a word about this and don’t dare let the phrases ‘network neutrality’ and ‘open media’ cross their lips is a problem of the first order because those concerns, as sure as night follows day, are at the heart of the emergent network media culture. How can foreign ownership be reconciled with these concerns should be the question, rather than if it if good or bad altogether.

In sum, until we can start speaking one another’s language and stop passing off economic and policy platitudes backed by those with big stakes in the game, the nominal ideas presented in this “report” should be shelved and other big questions — vertical integration, for example — put on hold.

Ultimately, Pork, Petroleum and Pharma are not the same as telecoms and media. We need some new thinking for ‘new media’.

Until we recognize this, we’re not going to get very far, at least in a a way that takes into account the full range of issues at hand, rather than the economists narrow measuring rod of value.

Musicians, Labels, Bankers and Retailers: Who Gets Paid What in the ‘Digital Music Age’?

Here’s something to get you seething, especially if you’re a musician. I came across it the other day in a book I’m reading: William Patry’s (2009) Moral Panics and Copyright Wars (Oxford U. Press).

Patry is a lawyer at Google, but as he admonishes us at the beginning of the book, don’t mistake him as a shill for the company. No, he seems much smarter than that and he gives us a learned treatise on copyright, its history, and the repeated ways in which the copyright industries have tried to whip up the public, nay, the politicians who write the laws, into moral panics.

As he notes, the Copyright Wars have broken out repeatedly for nearly 300 years. In each case, morality and the sanctity of the artist is invoked, yet mostly as a way of legitimating claims that allow the distributors (who are also often the financiers) and not the creators to obtain the lion’s share of the spoils from whatever art form is at stake — books, music, films, etc.

In terms of moral panics, the basic ingredient is to make the industry’s problem a public problem of the highest order, one in which deviants — mods and rockers in the UK that lead to Stanley Cohen’s pathbreaking sociology on ‘moral panics’ in the 1970s that Patry borrows from for his own title– threaten the fundamental foundations of society in one way or another. Now, it is pirates and people who rip and burn music, so the saying goes, that threaten to suck the lifeblood out of cultural creativity.

Patry, perhaps not surprisingly comes down full-square on behalf of the communication and media technology companies, the ones who make things from the VCRs and DVDs of yesteryear to the computers and smart phones of today: the Apples, Nokias, Microsofts, LGs and Google’s of the world. Copyright industries, in a tale well worn, but novelly told by Patry, are the enemies of innovation.

It’s a great read for anyone who wants to see how media technologies over the past four decades have been shackled by the music and movie industry’s penchant for either eliminating or blunting new capabilities that would allow people to say, record a broadcast and watch it at their own time (time shifting) or shift it from one device to another so that they can watch, read or listen to their content on a device or at a place of their choosing (space shifting). Great stuff indeed.

Now here’s the part that really got my goat, from page 118, where Patry breaks down who gets what in terms of the revenue generated from the sale of music. When CDs were king, musicians received about 9 percent of the sales revenues, the big labels (Warner, Sony, Universal, EMI), about 46 percent and the retailers (Walmart) 45 percent.  Key point: those who created the music to begin with were the low folk on the totem pole.

Now, fast forward a few years to the ‘digital music age’, where stuff is downloaded or streamed online from the likes of Apple, Amazon, Spotify and the 460 some odd other legit sites now in operation, according to the Recording Industry Association of America. So, have things got better or worse for musicians?

Worse. When it comes to digital downloads, musicians now get 8 percent (vs. 9), the label’s stake has soared to 68 percent (vs. 46 percent), the digital download sites get 15 percent (although Apple typically gets 30), and those who finance the transaction — credit cards and Paypal — get 9 percent.

It is a bit of a crazy, upside down world when those who facilitate the purchase of music actually get more than those who created the stuff in the first place. This is the intermediaries’ grubby tail wagging the musicians’ creative dog.

It is an index of a world out of whack. It is a world in which it is not pirates or music swapping amongst fans that are the problem but a set up in which the source of it all to begin with rank at the bottom of the heap.

More on how and why all of this ties back to Google, Patry’s place of business after all, and the rest of the ‘consumer electronics’ and ‘network’ industries in the next few days.  There is a tension between the latter and the ‘content industries’, and they are constantly at odds with one another, albeit just as often aligned. As Google introduces its own ‘digital swipe payment’ system, it now gets to stand midstream in the flow of money between media sellers and their audiences, as Visa, Mastercard, Paypal now currently do.

Google, like Apple want to bundle music and other media, with search or devices, and in their own digital lockers, or the more cuddly sounding notion of the cloud. In each, the bundling practice is presented as convenient, effective, technologically sleek and seductive overall. The name bandied about for such arrangements is ‘Total Systems Integration” (TSI).

I’m not sure why this is necessarily a bad thing. However, TSI sounds a lot like the notion of “one system, universal service” that AT&T rode to monopoly status for nearly a century. It sounds administratively technocratic.

Timothy Wu writes nicely about this in the Master Switch. I’ll write more about it, as I said above, in the next day or two. You may find the ‘refresher’ that I offered a few weeks ago on how the telegraph and telephone gave birth to the recorded music in the 1870s.

Global Internet Regulation: Tightening the Screws?

Last week in the run-up to the G8 leaders meeting in France, French President Nicolas Sarkozy convened a conference among prominent media and Internet types. The goal: how to ‘civilize’ the Internet.

As Sarkozy said,

The internet is the new frontier, a territory to conquer. But it cannot be a Wild West. It cannot be a lawless place, where people are allowed to pillage artistic works with no limits.

And you know what, he’s right. The Internet should not be a lawless frontier disconnected from the real world, and it is not. It is already deeply shaped by the same legal, political, economic and social forces that govern our actions daily.

That said, the crux of the approach being advocated by Sarkozy, and perhaps to come out in a communique at the end of the G8 meetings, is that Internet Service Providers, search engines and others are being ‘deputized’ to act on behalf of law enforcement officials and vested interests in the entertainment and ‘copyright industries’ (see the New York Times story as well). That is, they are being turned into adjuncts of both the state and vested interests to deal with matters that are, some more than others, sordid ones indeed: child pornography, money laundering, counterfeit goods and software and, of course (and in some instances) large-scale enabling of copyright infringement.

Of course, I’m the last to stand in support of child porn, money laundering, industrial scale piracy, and so forth. However, I am opposed to the full-court press that is now coming from three directions that aim to turn ISPs and search engines from being ‘gateways’ to the Internet to ‘gatekeepers’.

First, and largely since 2008, ISPs have come under a full-court press by the Recording Industry Association of America and the International Federation of Phonographic Industries (IFPI) to adopt a notice and take-down procedure. In this situation, once notified of allegations of copyright infringements, ISPs would block Internet users access to such content and, in some cases, cut off repeat offenders. Search engines would essentially make such content disappear by turning up a blank when suspect sites were queried.

The problem with this is already well-known: the gap between what is allegedly an infringement and what the law in each country actually determines to be so is big indeed. What typically happens is that private contractors using automated ‘notice and take-down’ systems take a shotgun approach, capturing much that is on the side of right in the process.

People caught in the cross-hairs have a steep hill to climb to prove their innocence. That is wrong because it turns presumptions of innocence on their head. Here’s a link to the Electronic Frontier Foundations “Takedown Hall of Shame” to get a sense of how overly-broad notices also curtail freedom of expression.

Second, Digital Rights Management (DRM) technologies began to go out of favour in the last few years, but as they were being abandoned, after 2008 the RIAA and its international counterparts were signing new memoranda of understanding with ISPs that enrolled the latter in the effort to combat piracy. The RIAA and IFPI have also pushed hard for national laws to accomplish the same ends. In other words, the RIAA is using technology, States and Markets to accomplish its goal of clamping down on content.

Sarkozy and the French Government were early and enthusiastic endorsers of such efforts and the three strikes law in France is considered by most to be particularly draconian. The IFPI has also chalked up several wins for such measures in other countries as well, including Sweden, South Korea, Taiwan and the UK, among a few others (see pp. 25-27).

Now, however, and at least in Britain such measures are under severe challenge in the courts by way of initiatives launched by two of Britain’s biggest ISPs, BT and TalkTalk, and in the court of public opinion, where they are losing badly. Yet, just as such measures come under severe criticism and challenge in some countries, they are being expanded in others.
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LobbyNomics: Kings, Queens, Copyright and Canada — Lessons to and from the UK

A new, independent report commissioned by the British Prime Minister has just come out. It’s observations are astute and damning: mostly with respect to the claims used to rush the Digital Economy Act of last year into law after only 2 hours of Parliamentary debate and for the exceedingly poor quality of the evidence upon which that questionable law, and the debate over copyright/intellectual property generally, takes place.

The report was penned by respected journalism Professor Ian Hargreaves, Digital Opportunities: A Review of Intellectual Property and Growth, and based on a team of highly regarded scholars, including the amazingly talented story teller and legal scholar, James Boyle (his 1996 Shamans, Software and Spleens is one of the most splendid books on knowledge and copyright in the ‘digital age’ that I’ve ever read).  The people behind the report are impressive; the range of sources consulted even more so.

The tone is set clearly in the Foreword. On page 1, it asks whether the U.K approach to copyright and intellectual property stifles innovation?  Yes, Hargreaves states without hesitating. Google, for instance, is on record stating that it couldn’t set up shop in the country

Are piracy and copyright infringement real problems. Absolutely, he states. “No one doubts that a great deal of copyright piracy is taking place” (p. 6).

However, the report tempers that with two key provisos — the equivalent of a double-knuckled blow against the central props of the ‘copyright industry’.

First, “sales and profitability levels in most creative business sectors appear to be holding up reasonably well.  We conclude that many creative businesses are experiencing turbulence from digital copyright infringement, but that at the level of the whole economy, measurable impacts are not as stark as is sometimes suggested (p. 6). This is pretty much the conclusion I reached in my column for the Globe and Mail this past Tuesday.

Second, “reliable data about scale and trends is surprisingly scarce” (p. 6). Since I’ve dealt with issues surrounding the economic state of the music and other media industries in other posts, including yesterday’s column, I will focus on the ‘quality of the evidence’ issue here.

Hargreave and colleagues are crystal clear that bad evidence is central to the whole issue of copyright law and adequately determining the vitality of the copyright industries as a whole, from music, to books, television, radio and animation — the whole gamut, including patents. A few examples help to illustrate the point:

• “A detailed survey of UK and international data finds that very little of it is supported by transparent research criteria” (p. 6);
• “There is . . . next to no evidence on copyright policy (p. 17);
• “[R]eliable data is surprisingly thin on the ground” (p. 69).
• “[W]e have failed to find a single UK survey that is demonstrably statistically robust” (p. 69).

The estimated scale of music piracy in the U.K. in the many studies they reviewed ranged wildly from 13 to 65 per cent (pp. 70-72). Studies globally are much the same, although a single study by Industry Canada and another by the Government Accountability Office (2010) in the U.S. (equivalent to the Auditor General in Canada) are singled out as exceptions to this rule, i.e. they’re good and follow valid analytical methods.

Based on the extremely poor quality of the evidence, the report states, “we should be wary of expecting tougher enforcement alone to solve the problem of copyright infringement” (p. 6).

Worse, not only have lobbyists been remarkably successful at driving an agenda on the basis of poor evidence, they have made “stronger Government action against online infringement . . .  their top priority” without the evidence needed to support such priorities (p. 67).

And the root of the problem?  The authors hold no punches there, either. “Lobbynomics”, they call it, a set of unfortunate circumstances whereby:

“Much of the data needed to develop empirical evidence on copyright and designs is privately held.  It enters the public domain chiefly in the form of “evidence” supporting the arguments of lobbyists (“lobbynomics”) rather than as independently verified research conclusions” (p. 18).

As Lord Puttnam, a leading light in the UK film industries and now MP, stated in regard to the rush job on the Digital Economy Act, “We have been subjected to an extraordinary degree of lobbying… The lobbying process . . . has done none of us very much help at all” (p. 6).

Worse, other MPs have apparently been star-struck by songstresses, celebrities and cinema stars: “there is no doubt that the persuasive powers of celebrities and important UK creative companies have distorted policy outcomes. (p. 92)
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“The Death of the Music Industry” in Canada and other Copyright Myths

The following is my column for the Globe and Mail today, with the addition of a few links here and there. I am fully alert to the fact that this is a very, very touchy subject, not least because musicians and artists are at the centre of the debate, but have been, other than a few megastars, the least to benefit financially from either conditions in the past, or those that prevail today.

Those interested in the topic might find my previous two posts of interests in this regard: the first one looks at the ‘methods’ involved in assessing the state of the music industry. It ends with the crucial proviso that we can collect “all the evidence in the world but still be morally stupid because you’ve thrown the artists and musicians amongst us under the bus”. In other words, this is not just about fun and games, but real people trying to make a real living.

That said, however, I am skeptical of the claims typically made on behalf the ‘music industry’, and equally circumspect that the interests of musicians are interchangeable with those of ‘the suits’ in the business. For those who want to hear something similar from somebody ‘inside the biz’, and who really knows his stuff, look at Bob Lefsetz’s newsletter.

Thanks to Bob, I’m listening to two great bands right now: Fleet Foxes and Mumford & Sons. It’s all about the music, being good, nay great, at what you do, and crucially the fans, those who adore your stuff and rave about you to others.

The second of these two posts sets out the idea that the music industry was in many fundamental ways the offspring of rivalry between the telegraph giant Western Union and then snarly upstart Bell Telephone Company in the late-1870s and 1880s. If rivalry between ‘network technologies’ gave birth to the music industry in the late-19th century, I think it is unlikely that ‘network technologies’ like the Internet and P2P are going to lead to their demise in the 21st century. History, in short, may be a useful and sturdy guide for thinking through the issues now in front of us.

Now, I’ll turn to the slightly revised/extended version of my column from today.

For more than a decade, the music industry in Canada, and globally, has been cast as being in dire straits — a portent of things to come for all media in the ‘digital age’, unless copyright laws are updated soon to combat illegal downloading.

The notoriety of file-sharing networks from Napster in the late-1990s, to Pirate Bay and the meting out of stiff punishment to Limewire is legendary. New sites emerge as swiftly as old ones are prosecuted out of business, fueling perceptions that the music industry is under siege.

Many claim this will only get worse as broadband Internet becomes a taken-for-granted fixture of everyday life. Copyright legislation has been proposed three times since 2005 by Conservative and Liberal governments alike.

Last year’s effort, The Copyright Modernization Act (Bill C-32), died when the election was called. It’ll be back. The Conservative’s election manifesto said it would be.

The Canadian Recording Industry Association (CRIA), backed by the Recording Industry Association of America (RIAA) and International Federation of Phonographic Industries (IFPI), argues that legislation delayed is justice denied. While Parliament dithers, they say, musicians and the music industry are getting slaughtered.

According to the IFPI, “overall music sales fell by around 30 per cent between 2004 and 2009” worldwide. The trend in Canada appears even worse, with “recorded music sales” plunging to a third of what they were in 2004, as the following figure shows.

‘Recorded Music Industry’ Revenues in Canada, 1998 – 2010

Source: Statistics Canada; PriceWaterhouseCooper.

But stop the music. What if this image of a beleaguered music industry is badly flawed?

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Back to the Future: From the “Death” to the “Birth” of the Music Industries

Not only should we be circumspect of claims that the Internet, P2P networks and rampant piracy are leading to the demise of the music industry, we must remember that the music industry itself is the child of the ‘network infrastructure’ industries going back to the late-19th century.

As I noted in my last post, the “death of the music industries” only makes sense if we focus on just the ‘recorded music sales’ segment of the business rather than the “total music industry”: 1) recorded music sales; 2) online digital music sales (Internet, ringtones, etc.); 3) concerts and 4) publishing. I have provided the details for this argument in a previous post; my column for the Globe and Mail this week (May 17) will consider the specific case of Canada.

Here I want to make a different case: namely, that claims about the impending demise of the music industry is especially strange once we consider that network technologies gave rise to the music industry to begin with.  In fact, the music industry was the direct offspring of  ‘network infrastructure’ competition between the Western Union Telegraph Company and the Bell Telephone Company in the U.S. and Canada in the late-1870s and 1880s.

To be sure, there is more to this than just corporate rivalry over new technologies and markets. For instance, innovations in architecture — the use of iron girders, in particular — allowed music concerts halls to be built much bigger and on smaller tracts of land in crowded metropolitan cities such as London and New York in the latter part of the 19th century. More seats in bigger halls meant economies of scale. That meant cheaper tickets and bigger audiences. The expansion of the concert side of the business was, according to the historian Gerben Bakker, a key component in the ‘industrialization of entertainment”, and these processes were replicated throughout the world.

The ‘recorded music’ side of the business was ushered into being as an unintended outcome of “network infrastructure competition” between Western Union and the Bell Telephone Company in the United States. As Richard John notes in Network Nation, as part of this competitive rivalry, Western Union and the Bell Telephone Company threw vast sums of money at the leading technological geniuses of their time – Thomas Edison, Elisha Gray, Alexander Graham Bell and Emile Berliner.

The results produced several cutting-edge innovations that shaped the communication and entertainment industries into the 20th century: (1) quadraplex technology that doubled the speed of telegraphs, (2) the telephone, and (3) the phonograph.

Thus, in addition to their key role in the development of and competition between the telegraph and telephone, all of these figures, Bell, Edison and Berliner, except Gray, also became primary early movers behind the development of the phonograph and ‘recorded music’ industries as a direct result of unintended discoveries stemming from their role in the corporate rivalry between Western Union and the Bell Telephone Company between, roughly, 1876 and 1881.

Edison set up his Speaking Phonograph Company in 1877. Bell and the Bell Telephone Company patented their innovations for the graphophone and commercialized it through the creation of the Volta Graphaphone Co. in 1886, a company that, through mergers and acquisitions, would be transformed into Columbia Records over time.

Berlinger’s work at the Bell Telephone Company until 1883 led directly to his own patents for the gramaphone machine in 1887. He created the Gramaphone Company two years later, and set up international branches in London (the Gramaphone Company), Hanover, Germany (Deutsche Grammophon) and Montreal (Berliner Gram-o-Phone Company) over the next decade.

Not suprisingly, these three companies came to dominate the music industries that Edison, Bell, and Berliner had played such a primary role in creating. Remnants of Berliner’s Gramaphone companies are still with us today, having been progressively absorbed in one way or another into the operations of Universal, EMI and Sony over time.

In short, network infrastructure competition drove the development of the music industries.

There are several other important dimensions in these developments that need to be unpacked and discussed.

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The Great Struggle for the Soul of the Internet and Network Media in Canada (Part 1)

A strange confluence of forces has just made the push to have Netflix and other over-the-top video distributors (OVDs) such as Amazon, Apple and Google regulated by the rules of the Broadcasting Act a whole lot stronger.

Events kicked into high gear this week when Astral Media renewed calls for the CRTC to regulate OVDs just like any other broadcaster. Bell, Rogers and Shaw quickly endorsed the call.

Astral, Bell and other incumbents are coming under increased scrutiny from investment bankers worried that OVDs could wreck their bottom line and this seems to have increased their resolve to thwart would be rivals. Moody’s — the investment ratings agency – also recently raised such concerns, while casting doubt on the dominant integrated media companies’ — Bell CTV, Shaw Global (Corus), Rogers City TV and Quebecor Media – decisions to acquire ever bigger stakes in the television business.

When investment bankers worry, CEOs tremble and Netflix as well as the open Internet generally could end up paying the price.

The Canadian Media Production Association‘s recent appeal to the CRTC to regulate Netflix under the Broadcasting Act added to the full court push, as did the Supreme Court‘s decision last month to hear a case from various groups representing media workers who want ISPs as well as Netflix, Apple, Google, and so on to be regulated like broadcasters.

Lastly, a Standing Committee on Canadian Heritage report published last month and the CRTC’s upcoming reviews of its unpopular wholesale UBB decision and vertical integration have also brought the issues to a head.

These issues are not new. In fact, in its famous “new media” decision in 1999, the CRTC categorically asserted its authority to regulate broadcasting services delivered over the Internet, but decided to stand on the sidelines while such services were in their infancy.

The vertically-integrated, dominant telecom, cable and internet service providers love the approach because it has given them a green light to develop new markets while letting them off the hook with respect to issues about vertical integration, anti-competitive behavior, Cancon requirements and funding commitments in the emerging digital media universe.

The CRTC’s decision to stand on the sidelines has no doubt played well to the ‘hands-off-the-Internet’ crowd, as well. The truth is, however, that this has only postponed the day of reckoning.

That day of reckoning has been moving ever closer since broadcasters finally made a concerted effort to launch substantial video portals in 2007/2008 (e.g., CBC.ca, CTV.ca, GlobalTV.com), while offering some programs through Apple iTunes and YouTube. Simultaneously, they have  fought tooth and nail to defend their existing markets and expand into new ones, while using a well-stocked arsenal of measures to block rival OVDs such as Netflix. Six such tactics stand out:

First, bandwidth throttling was used by Bell in 2008 to cripple the CBC’s attempt to use BitTorrent to distribute an episode of Canada’s Next Great Prime Minister, while today Rogers’ throttling of P2P applications causes no end of frustration for those who play World of Warcraft online.

Second, ‘bandwidth caps’ and Usage-Based Billing are being used by all of the major ISPs to deter online video use. Netflix has deliberately degraded the quality of its service to help subscribers avoid these punitive and restrictive measures as a result.

Third, the incumbents do not apply the same measures to their own services. Bell’s chief regulatory officer, Mirko Bibic, recently provided a great example of the tortured logic used to justify such treatment when he argued that, despite using the same network facilities, Bell’s OVD service is not a ‘true’ Internet-based service, while Netflix is.

Fourth, the incumbent telecom and cable companies’ refusal to interconnect their systems with others has blocked large OVDs and Internet companies such as Amazon, Apple, eBay, Facebook, Google, and Netflix from bringing their ‘content distribution networks’ as close to users as possible.

Fifth, Canada’s integrated multimedia conglomerates have used a combination of program rights, geo-gating and digital rights management (DRM) technologies and a smattering of deals with Apple and Youtube to shore up their control over access to our ‘national media market’. The Rogers, Bells, Shaws, Quebecors, and so on of this country do not like the prospect of having to compete for each and every new digital market with newcomers one bit; nor do cable providers in the United States.

As a recent New York Time’s article observes, Time Warner and Cablevision are locked in battle with Viacom (MTV, VH1, etc.) and Scripps Howard (HGTV, Food Network, etc.), with the cable companies arguing that the rights they have acquired to deliver channels to audiences’ tv sets also lets them beam those same channels over the Internet to iPads and iPhones. Viacom and Scripps Howard vehemently disagree.

In the incumbents’ “perfect world”, they would simply fold the OVD market into the suite of rights they acquire for traditional television markets without having to compete with Netflix at all. If they had it their way, the Internet would just be bolted on to the side of their lucrative television business.

Netflix strengthens the hands of content creators and rights holders on both sides of the border relative to traditional broadcasters. In Canada, this battle over the essential resources of the media economy — networks, money and copyrights — are concealed by a fog of sanctimonious rhetoric about cultural policy led by vested interests.

Seen from the broadcaster’s point of view, Netflix’s recent acquisition of new drama series and its deal with Paramount Studios for online video distribution are just further evidence that the company is steadily encroaching on their turf — one more reason why it should be quickly brought to heel. Even if we thought for a moment that regulating Neflix and OVDs was a good idea, what should we do as Hollywood experiments with using Facebook as a new ‘window’ for blockbusters such as The Dark Knight, Philosopher’s Stone, Yogi Bear, and Chamber of Secrets, among others?

Do we regulate Facebook as a broadcaster too?  I’m all for attending to that company’s privacy issues and other mattters, but Facebook and broadcasting? Obviously, there is no shortage of slippery slopes and pitfalls along the incumbents’ garden path.

The sixth defensive weapon in the incumbent’s bid to hobble new rivals is their coordinated push for government regulation. Perhaps the award for sharpest U-turn on these issues goes to Shaw after it acquired Global TV in the fall of 2010.

After a decade of opposition to the CRTC in general and to the regulation of the Internet specifically, Shaw President Peter Bissonnette laid out the new gospel in front of the Canadian Heritage Committee referred to earlier: “If there’s one message we want to leave with you . . . it is that over-the-top competitors have a free ride. They’re aggregators of broadcasting. They provide broadcasting services in Canada.” They should be regulated like broadcasters.

For anybody still under the illusion that the Internet is unregulable, Shaw and others point to extensive regulatory tools that they’d like to see pressed into service: e.g. ISP levies; extending Section 19 Income Tax Act Exemptions so that adverting on Canadian Internet sites can be written off just as it is for Canadian-owned newspapers, magazines and broadcasters; Canadian Media Fund contributions; Cancon Quotas, etc.

Acceding to the full sweep of this agenda would not just wreck Netflix’s ‘business model’, it would destroy the future of the Internet. To stem the tide, we need to understand just how wildly out of synch the ‘sky-is-falling’ rhetoric is with the fact that the television industry is more lucrative then ever. We also might wonder if Netflix, Apple, Google, Amazon, et. al. might agree to adding some water to their wine in return for a quick stop being put to the discriminatory practices that now hobble their activities in Canada?