Thierer v. Von Lohmann

by on November 9, 2005 · 12 comments

Adam and Fred duke it out over on the PFF blog, and I have to admit that my previous criticism was a bit hasty. I skimmed the report, but didn’t read the conclusion very carefully. He proposes a plausible alternative business model for the labels wherein consumers pay a flat fee for the right to make unlimited peer-to-peer downloads of copyrighted music. This is, at a minimum, a serious proposal worth discussing, and I can see some appeal in it. Notably, it does give people a way to “go legit” without being forced to put up with irritating and pointless DRM restrictions.

I do, however, think Adam continues to have a good point: what to do with the people who don’t join this scheme either? Fred seems to think that the number of such people will be trivial and so enforcing the rules against them won’t be very difficult. I’m not so sure. Even $5/month is a non-trivial amount of money to some people, and lots of people are lazy. I think a lot of people might continue to use P2P without paying the fee, and you’d be left in the same situation you’re in now: no way to enforce the rules except to sue them.

Secondly, is $5/month going to be enough to come anywhere close to replacing music industry revenues? The music industry currently gets about $13 billion in revenues. They’d be saving some money by not having to ship plastic discs around, so let’s round that down to $10 billion. To replace that revenue with $5/month subscriptions, it would need 150,000,000 subscribers. Is that reasonable? I honestly don’t know. If you combine the populations of the U.S., the EU, and Japan, there certainly are enough people in the industrialized world to support such a scheme, but I think the music industry would find it extremely difficult to corall enough of them into signing up.

After all, if I were a consumer in Fred’s future, what I would do is pay my subscription, download all the music I wanted in a month, and then cancel the subscription the following month. I might do that every 6 months or so. That would mean instead of adding $60/year to the industry’s coffers, I’d be adding about $10. To break even at that price you’d need about a billion subscribers, which is probably impossible, at least until China and India join the ranks of the wealthy nations.

Moreover, this kind of scheme seems like it would be extraordinarily difficult to enforce. If legitimate P2P services require users to log in with an RIAA-approved password, what’s to stop a dozen friends from sharing the same password? If the P2P services don’t require logging in, how will anyone figure out which users are legit?

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About Tim Lee

Timothy B. Lee (Contributor, 2004-2009) is an adjunct scholar at the Cato Institute. He is currently a PhD student and a member of the Center for Information Technology Policy at Princeton University. He contributes regularly to a variety of online publications, including Ars Technica, Techdirt, Cato @ Liberty, and The Angry Blog. He has been a Mac bigot since 1984, a Unix, vi, and Perl bigot since 1998, and a sworn enemy of HTML-formatted email for as long as certain companies have thought that was a good idea. You can reach him by email at leex1008@umn.edu.

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  • http://tieguy.org/blog/ Luis Villa

    Tim, you should read Terry Fisher’s ‘Promises To Keep’, which goes into something like this model (and all the alternatives) in quite some detail, including an analysis of the economics of the current system (I don’t have the exact number offhand, but his analysis would suggest that the number is a lot smaller than $10B once you scrape away distribution, most marketing, payola, etc.) I’d love to see a review/analysis of the book from the techliberation crowd- the argumentation is generally very sound, as far as I can see, but the conclusion goes even further than Fred does, arguing for a compulsory license and a government-collected fee system, which I figure would probably raise a lot of hackles around here, and certainly makes me uncomfortable, even though his logic generally seems sound.

  • http://tieguy.org/blog/ Luis Villa

    Tim, you should read Terry Fisher’s ‘Promises To Keep’, which goes into something like this model (and all the alternatives) in quite some detail, including an analysis of the economics of the current system (I don’t have the exact number offhand, but his analysis would suggest that the number is a lot smaller than $10B once you scrape away distribution, most marketing, payola, etc.) I’d love to see a review/analysis of the book from the techliberation crowd- the argumentation is generally very sound, as far as I can see, but the conclusion goes even further than Fred does, arguing for a compulsory license and a government-collected fee system, which I figure would probably raise a lot of hackles around here, and certainly makes me uncomfortable, even though his logic generally seems sound.

  • http://www.binarybits.org/ Tim

    That does sound interesting, perhaps I’ll check it out.

  • http://www.binarybits.org/ Tim

    That does sound interesting, perhaps I’ll check it out.

  • http://www.ssokolow.com/ Stephan Sokolow

    I’d have to agree with those “problems” to the scheme. I make roughly $40 per month (poor university student) and, as Canadians, my parents and I aren’t all that scared of the RIAA.

    If you add in the fact that I detest subscriptions and my parents can hardly afford to pay for DSL as it is, you start to see where I’m coming from. (The only kinds of subscriptions I’m willing to pay for are things where I don’t have to do anything to take full advantage of the money I paid. For example, DSL, web hosting, and magazines)

    There’s also the fact that I’m boycotting the RIAA and MPAA for their poor response to changing technology. I’m also boycotting the CRIA until such time as I have enough free music to compensate for all of the subsidies they gathered on the 860+ CD-Rs which I have used for non-musical computer data. (At a rate of 25 cents per song, which is what I’m willing to pay)

    Music which was released for free to begin with (a surprisingly large portion of my collection) is exempt from these calculations, so it’s going to take a while.

  • http://www.ssokolow.com/ Stephan Sokolow

    I’d have to agree with those “problems” to the scheme. I make roughly $40 per month (poor university student) and, as Canadians, my parents and I aren’t all that scared of the RIAA.

    If you add in the fact that I detest subscriptions and my parents can hardly afford to pay for DSL as it is, you start to see where I’m coming from. (The only kinds of subscriptions I’m willing to pay for are things where I don’t have to do anything to take full advantage of the money I paid. For example, DSL, web hosting, and magazines)

    There’s also the fact that I’m boycotting the RIAA and MPAA for their poor response to changing technology. I’m also boycotting the CRIA until such time as I have enough free music to compensate for all of the subsidies they gathered on the 860+ CD-Rs which I have used for non-musical computer data. (At a rate of 25 cents per song, which is what I’m willing to pay)

    Music which was released for free to begin with (a surprisingly large portion of my collection) is exempt from these calculations, so it’s going to take a while.

  • http://htpp://www.metalunderground.com Zack Dusedau

    $5 is more than enough to cover artists. put in some ads to cover ‘server’ and developement costs it sounds like a great idea i’d hop on to.

    there would have to be some kind of individual computer/network setup. aka, download from one comp and it can be acessed from all comps. BUT two computers with the same IP can access at the same time, but there would be recognition that they are different users.

    i’ve been developing a business model too. the idea is just an idea, so i’ll share it. the P2P scheme will be based on bit torrent and there will be a central website hosting small music files (64-96kbps MP3) allowing for streaming and downloading for anyone, but only selected songs. there will be ads, subscribers get bonus features. different level of subscribers depending on how much they pay. you can also just sign up and get more features. each user has a secure account on a name basis, like you would with say cable TV. all recorded music will be found here, as a recording studio records a band, it gets put up. P2P downloads for the highest subscriber are high quality uncompressed wave files (24bit/192khz). people have different quality equipment in their house, the higher the quality the more you pay. artists get their royalty cut with an added bonus for each song downloaded/played/page view. record labels will, if they are smart, come together to offer this service to everyone. this is the label. the label takes the rest of the cut of the $.

    let’s just say this: look at myspace, it makes millions off of ad revenue. and i’m talking after all server costs and everything. why can’t major labels do the same and offer music for free? free as in free to people who sign up (anyone can download an mp3 for free without subscribing)

    just my thoughts, had to get them out there this seemed like the place

    ZD

    PS: anyone wanna help me start this idea feel free to e-mail me. i have no where near enough programming language to put this through.

  • Zack Dusedau

    $5 is more than enough to cover artists. put in some ads to cover ‘server’ and developement costs it sounds like a great idea i’d hop on to.

    there would have to be some kind of individual computer/network setup. aka, download from one comp and it can be acessed from all comps. BUT two computers with the same IP can access at the same time, but there would be recognition that they are different users.

    i’ve been developing a business model too. the idea is just an idea, so i’ll share it. the P2P scheme will be based on bit torrent and there will be a central website hosting small music files (64-96kbps MP3) allowing for streaming and downloading for anyone, but only selected songs. there will be ads, subscribers get bonus features. different level of subscribers depending on how much they pay. you can also just sign up and get more features.
    each user has a secure account on a name basis, like you would with say cable TV. all recorded music will be found here, as a recording studio records a band, it gets put up.
    P2P downloads for the highest subscriber are high quality uncompressed wave files (24bit/192khz). people have different quality equipment in their house, the higher the quality the more you pay. artists get their royalty cut with an added bonus for each song downloaded/played/page view.
    record labels will, if they are smart, come together to offer this service to everyone. this is the label. the label takes the rest of the cut of the $.

    let’s just say this: look at myspace, it makes millions off of ad revenue. and i’m talking after all server costs and everything. why can’t major labels do the same and offer music for free? free as in free to people who sign up (anyone can download an mp3 for free without subscribing)

    just my thoughts, had to get them out there this seemed like the place


    ZD

    PS: anyone wanna help me start this idea feel free to e-mail me. i have no where near enough programming language to put this through.

  • chaser7016

    Future ISP data bills should and will mirror current cell phone monthly bills; X amount of bandwidth plan each month and anything gone over will cost the consumer accordingly. EDVO companies will be the first to implement this as services like Skype eat away their telephone service revenues. From here ISPs can then become clearing houses and pay copyright holders for wares traded over their networks, from big media to little joey in his room making music then putting it on a P2P.

    Chaser

  • chaser7016

    Future ISP data bills should and will mirror current cell phone monthly bills; X amount of bandwidth plan each month and anything gone over will cost the consumer accordingly. EDVO companies will be the first to implement this as services like Skype eat away their telephone service revenues. From here ISPs can then become clearing houses and pay copyright holders for wares traded over their networks, from big media to little joey in his room making music then putting it on a P2P.

    Chaser

  • http://www.none.com Alex H

    Tim,

    I’d just like to comment on one thing you mentioned: “They’d be saving some money by not having to ship plastic discs around, so let’s round that down to $10 billion.” (from $13 billion)

    I don’t think you’re giving enough weight to how much it actually costs to make, ship and sell a CD. The costs of physical distribution are far and away the most expensive part of getting music from an artist to the listener (seriously, it’s like 60-80% of the cost of a CD).

    So, running a few chunky servers and then letting the fans chip in their upstream bandwidth is such a HUGE saving for record companies.

    • What does it cost to produce an .mp3?

    • Nothing, because all the software that does that is free.

    • What does it cost to host an .mp3 on a server for a few months?

    • Maybe a few bucks in bandwidth.

    • What does it cost to remove the .mp3 from the sever and let all the people who’ve downloaded it do the distribution for you?

    • Nothing, just search the p2p networks every now and then to make sure there are people still sharing the .mp3

    That takes us back to paying for studio time, paying the artist, their managemnet and promo stuff, which was going to be done anyway to create an album in the first place.

    So, if 60-80% of your costs just went out the window, you can either: a) reduce prices b) be greedy bastards, charge the same and complain that p2p users are destroying you.

    Right now, I pay $30 a month for unlimted DVD rentals at my local video store. If someone gave me the option of paying a similar amount for DRM free, all-you-can-download, no legal hassles p2p, I’d jump on it.

  • http://www.none.com Alex H

    Tim,

    I’d just like to comment on one thing you mentioned: “They’d be saving some money by not having to ship plastic discs around, so let’s round that down to $10 billion.” (from $13 billion)

    I don’t think you’re giving enough weight to how much it actually costs to make, ship and sell a CD. The costs of physical distribution are far and away the most expensive part of getting music from an artist to the listener (seriously, it’s like 60-80% of the cost of a CD).

    So, running a few chunky servers and then letting the fans chip in their upstream bandwidth is such a HUGE saving for record companies.

    - What does it cost to produce an .mp3?
    - Nothing, because all the software that does that is free.

    - What does it cost to host an .mp3 on a server for a few months?
    - Maybe a few bucks in bandwidth.

    - What does it cost to remove the .mp3 from the sever and let all the people who’ve downloaded it do the distribution for you?
    - Nothing, just search the p2p networks every now and then to make sure there are people still sharing the .mp3


    That takes us back to paying for studio time, paying the artist, their managemnet and promo stuff, which was going to be done anyway to create an album in the first place.

    So, if 60-80% of your costs just went out the window, you can either:
    a) reduce prices
    b) be greedy bastards, charge the same and complain that p2p users are destroying you.


    Right now, I pay $30 a month for unlimted DVD rentals at my local video store. If someone gave me the option of paying a similar amount for DRM free, all-you-can-download, no legal hassles p2p, I’d jump on it.

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