Compulsory Entertainment?

July 15, 2002 • Commentary
This article appeared on Tech​cen​tral​sta​tion​.com on July 15, 2002.

Big Media, we have ways of making you entertain us.

Napster failed to achieve a working business model in the face of record company opposition to online file sharing. But sharing — the record companies call it piracy — lives on, and Napster descendants like Kazaa are fed up waiting for foot‐​dragging record companies to allow downloads of copyrighted music from the Internet.

So Kazaa — as well as Verizon, an Internet service provider wary of being held liable for the use of its networks for piracy — is calling for compulsory licensing: That is, these firms want the government to force record companies to allow the downloading of music in exchange for a government‐​administered fee to be paid by Web users and transferred to artists, composers and record companies. The fee would be collected in some unspecified way — perhaps in the form of a tax on Internet access or file — sharing services, or perhaps a tax on CD burners or blank CD‐​ROMs.

Compulsory licensing is rooted in the idea of “market failure,” the perception that it is too difficult for scattered owners and licensees to agree on terms or to gauge usage. But the call to apply forced licensing to downloads is off base. Digitization presents an opportunity, not to expand the already extensive regime of compulsory licensing (like that governing radio), but to move beyond it. Private associations have long been capable of overcoming licensing bottlenecks, as Berkeley professor Robert Merges has noted. With online technologies that make it easier to communicate and track all downloads and streams, compulsion is even less defensible.

Eliminating producers’ own authority to withhold or distribute their product at a self‐​chosen price would be a huge mistake as thousands strive to create the “celestial jukebox” (and library and movie theater) of tomorrow. Compulsory licensing makes enemies of producers and distributors.

Already, tremendous confusion has been created with the attempt to administer mandatory licensing for webcasters because of fights over government‐​set royalties and terms. It is not a good move to extend this war to music at large and potentially to the movie industry.

Love ‘em or hate ‘em, record companies have no control over today’s rampant copying, and compulsory licensing would help assure they never do. Downloads are perfect, permanent copies; not transient radio waves. The root question of how the property of artists will be protected from piracy remains unaddressed by compulsory licenses.

It makes no sense to impose forced licensing for something that is already being shared. Meanwhile, companies are experimenting with digital rights management technologies to better secure their content.

Moreover, compulsory licensing could thwart new companies and business models that might otherwise transform the music‐ and movie‐​making businesses. Regulatory interference with private licensing and promotional arrangements could dissuade new, competing record labels, for example, or alternative payment systems from clever artists, and other diverse business deals that would prove superior to a compulsory license.

Ironically, voluntary collaborations to cross‐​license and protect digital content — a market alternative to mandatory licensing — face antitrust scrutiny. MusicNet and Pressplay are subjects of a Department of Justice investigation of alleged monopoly power since they would “control” 80 percent of the world’s “music catalog.” But recall that one‐​stop‐​shopping was Napster’s appeal. Why substitute voluntary efforts to enable universality with a compulsory licensing scheme, allegedly in the name of trustbusting? Along with copy protection technologies, licensing arrangements in the digital marketplaces must evolve and adapt, not be specified in advance by politicians and lobbyists. In the final analysis, the reluctance shown by record companies may not be due just to fear of “Napsterization,” but the desire to wait out broadband deployment since most music is still sold offline at places like Wal‐​Mart. But the proliferation of broadband will inevitably force record companies to sell downloads and streams rather than plastic disks, meaning that market pressures for legitimate licenses are only going to get stronger. Presumably that is what MusicNet, Pressplay and other online models anticipate.

Record company reluctance — and that of Hollywood — to digitize offerings is ultimately a transitional problem that does not call for compulsory sharing of music, or by extension, e‐​books and movies. Luckily, getting all the intermediaries — ISPs, P2P services, and hardware and storage media makers — to agree on who will add the costs of a compulsory license to their product or service is likely even more difficult and vastly more inefficient than all the players involved finally coming up with tailored market solutions.

Besides, apart from the threat to entrepreneurialism that a compulsory license would create, it’s hard to make a case for a “right” to be entertained at a government‐​regulated price.