Mark Lemley – IS THE SKY FALLING ON THE CONTENT INDUSTRIES?

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Are the content industries doomed? They certainly seem to think
So. The music industry tells us, as their revenues decline because of file
Sharing, “we can’t compete with free,” and so we’re history. No one is
Going to create new music anymore. The video industries seem to be
Getting in on the act, too. They’ve showed up behind closed doors in
Washington, D.C. to complain about the prospect of a national
Broadband plan, because broadband is simply going to make it easier for
People to pirate video over the Internet. “We’ve got to do something
About it,” they tell us, “or no one is going to make movies anymore.”
And now, as you’ve read from Mark Cooper, newspapers are in on
The act as revenues decline.
Print journalism is dying, people are leaving
The business in droves because “we can’t compete with free.” Though
Here, curiously, the free is their own free. The complaint of the
Newspapers is that they can’t compete with themselves putting their own
Material on the Internet for free

This sounds like a pretty alarming story. But this is not the first
Time the content industries have told us that they face imminent disaster
I sometimes suspect there was an association of monastic scriveners who
Protested the printing press on the theory that it was going to destroy the
Beautiful hand illumination of manuscripts. Which, of course, it did. But
It did not, as a result, destroy the book industry. In fact, it rather
Expanded that industry

I do know that artists in the 19th century complained about
Photographs because who was then going to pay them to paint portraits
Of people? Who’s going to want photorealistic artistic portrayals of
Landscapes if you can just have a machine do the same thing? Artists, we
Were told, would be driven out of the profession in droves, and art would
Wither and die
. Photography did, of course, change the art world. But it
Arguably changed it for the better. And in any event, the benefits of the
Addition of the camera to the repertoire of art surely outweigh the costs
Moving into the 20th century, the claims about technology as a
Threat to content came fast and furious. The threats in the first decades
Of the 20th century were the player piano and the gramophone. John
Philip Sousa wrote an article, The Menace of Mechanical Music
, in which
He argued that those infernal devices were a “threat to his livelihood, to
The entire body politic, and to ‘musical taste’ itself. . . . The player piano
And the gramophone [ ] strip[ ] life from real, human, soulful live
Performances
.”4 And he articulated an argument that is going to sound
Familiar to any of you who have been in the copyright industry:
Do they not realize that if the accredited composers, who have come
Into vogue by reason of merit and labor, are refused a just reward for
Their efforts, a condition is almost sure to arise where all incentive to
Further creative work is lacking, and compositions will no longer flow
From their pens . . . ? What, then, of the playing and talking
Machines?

In other words, without some way for musicians to continue to get
Paid as they had been paid before (by selling sheet music), no one will
Create content
Interestingly, Sousa’s concern was not with professional content
Creators. Notwithstanding the previous passage, his real concern was that
Amateur music-making was threatened by the rise of a professional
Musical class that could lead to the rampant destruction of the country
He wrote
[U]nder such conditions the tide of amateurism cannot but recede
Until there will be left only the mechanical device and the professional
Executant. Singing will no longer be a fine accomplishment; vocal
Exercises, so important a factor in the curriculum of physical culture
Will be out of vogue! Then what of the national throat? Will it not
Weaken? What of the national chest? Will it not shrink?


The worry was that amateur musicians would disappear, taken over
By professionals who could afford to produce music using this
Technology id we destroy the music industry by introducing the gramophone?
Not so much...

In fact, 20 years later, the next imminent threat to the demise of the
Content industries came from radio. Curiously, the threat from radio was
That it was going to steal the very revenues that that gramophone
Industry had in the previous 20 years generated for musicians
Nonetheless, because radio is available for free to all, because no one
Charges for it, we started to hear the emergence of the argument that you
Can’t compete with free. If radio is allowed, the argument went, pirate
Radio will destroy the music industry because who would buy music with
Real money when they could just listen to it on the radio for free?
That turned out also to be not so true. It seems that perhaps you can
Compete with free.
Certainly consumers starting in the 1920s were
Perfectly happy to buy music notwithstanding the availability of that very
Music on the radio for free
Switching channels to the video industry, by the late 1950s and the
1960s, the television industry was threatened by another bogeyman that
Was going to destroy television. The existing business model was
Providing broadcast television for free; the threat was cable television
Note the irony here. The argument was not that paid content can’t
Compete with free, the argument is free content can’t compete with paid
If we don’t shut down the cable television industry, no one will bother to
Produce new television shows, and there won’t be anything to go on
Cable. This is an argument that made it all the way to the United States
Supreme Court in the Fortnightly case
and led to a decision that brought
Us within two votes of shutting down the cable television industry unless
It had the permission of the television broadcasters.

Ironically, of course, not only did we not shut down television as a
Result of introducing cable television, it is now broadcast stations who
Fight to get on cable networks, going to court again to demand that they
Be included on cable television because that will expand their market.


By the 1970s the big action was in the photocopier. The
Photocopier, like the printing press, the camera, the record player, radio
And cable television, permitted people to replicate things they would
Otherwise have to pay for, namely books. No less an authority than
Melville Nimmer, the leading copyright scholar, wrote, “the day may not
Be far off when no one need purchase books.”
That was in 1972. So the
Copyright industries tried to shut down the photocopier; suing in the
Williams & Wilkins case to try to prevent the widespread copying by
Federal government institutions of books and journal articles.
Again the
Content industries made it to the Supreme Court and were barely foiled
Here by an equally divided Court.
The photocopying of journal articles
Was (barely) allowed
Books and journal articles did not disappear in the early 1970s
Instead they seemed to thrive during that time, notwithstanding the
Existence of a technology that allows people to take them for free
By the late 1970s we get to the example that is perhaps the most
Familiar: the VCR. The free television model, augmented by cable, had
Been established for some time. Along came a technology that allowed
People to copy this freely provided television content and do what they
Wanted with it. The content industry warned us that the VCR must be
Stopped. Here is Jack Valenti of the MPAA, speaking to Congress:
[T]he VCR is stripping . . . those markets clean of our profit
Potential, you are going to have devastation in this marketplace. . . . We
Are going to bleed and bleed and hemorrhage, unless this Congress at
Least protects one industry that is able to retrieve a surplus balance of
Trade and whose total future depends on its protection from the savagery
And the ravages of this machine.

If that were not enough, he went on to say, “I say to you that the
VCR is to the American film producer and the American public as the
Boston strangler is to the woman home alone.”15 The industry’s position
Was that if Congress didn’t shut down the infernal machine that was the
VCR, if they didn’t prevent people from making copies, no one would
Make movies
This argument carried the day in the Ninth Circuit, which held the VCR illegal. It then went to the Supreme Court, which heard the case twice. The Court was at first inclined to affirm the Ninth Circuit’s
Conclusion and ban the VCR, but ultimately decided, by a 5-4 vote, that
The VCR was okay.


Did content suffer as a result? Not exactly. In fact, it turns out that
Through the 1980s and 1990s it was the very VCR and its successor, the
DVD player, which were going to destroy the broadcast and movie
Industries, that kept them alive, generating $30 billion in revenues by
2002 for the industries.

Back on the audio front, at about the same time, the content
Industry was concerned about audio cassettes. The gramophone records
Which themselves didn’t destroy the industry, and which survived the
Ravages of radio, were now threatened by audio cassettes because people
Could tape music off the radio. While listening to the radio for free
Turned out not to shut the music industry down, listening to the radio
Taping the songs, and listening to those songs whenever you wanted to
Was certainly going to shut it down
So, the industry started an ad campaign to try to shut down audio
Cassettes featuring a skull and crossbones in the shape of an audio
Cassette tape. The tag line was “Home Taping is Killing Music and It’s
Illegal.”
But we didn’t ban home taping, and it turns out that music
Sales continued to go up through the 1980s and the 1990s
Notwithstanding the threat of home taping and the possibility that
People could have for free what they otherwise would have to pay for.


We did, however, successfully shackle the next-generation of audio
Technology in the early 1990s with the digital audio tape. Here the
Perceived threat was the same as audio cassettes but worse. Audio
Cassettes turned out not to have shut down the industry, true. But if you
Gave customers digital audio cassettes, content owners warned, if you
Allowed them to make a digital-quality copy, then they had no reason to
Buy our better quality copy, and we will be shut down. That argument
Carried the day in Congress. Digital audio tapes were then subject to a
Compulsory licensing scheme and were never heard from again by massmarket consumers.
The technology flopped once it was put under the
Control of the content industry
By the late 1990s the same arguments were made against the latest
Digital scourge, the MP3 player. We have to shut down the MP3 players
We were told, because the Rio, Diamond Multimedia’s first-generation
Player, was designed to undermine the creation of a legitimate digital
Distribution marketplace. The MP3 player threatened to provide digital
Content when consumers wanted it. Consumers who could create their
Own digital content from their CDs wouldn’t buy digital content from
The content industries—not that those industries were actually offering
Digital content at the time, but just in case they wanted to in the future
So the music industry sued to shut down the MP3 player. That suit
Failed in the 9th Circuit in the RIAA v. Diamond Multimedia case.22 MP3
Players took off, and people started to load them with content. And yes
It is true that a lot of that content was unlawfully copied, but the owners
Of MP3 players also spent a lot of money buying CDs at the end of the
1990s. But then along came Napster, which, the RIAA told us once
Again, was going to shut down the music industry. Digital music must be
Stopped. The RIAA fought a delaying action for years to try to do this
But they ultimately lost. They did win their individual cases; they shut
Down Napster
and they later shut down Grokster and Limewire.
They did not shut down digital music distribution. When, a decade later
They ultimately gave in and offered it, it turned out people were actually
Willing to buy their digital music. In April 2008, Apple surpassed Wal-
Mart as the largest retailer of music in the country.26 And by 2008, there
Were more legal music sales of all types than ever before in history; 70%
Were digital downloads. Digital music in general is not in fact the threat
It seemed to be.

Meanwhile, back in the video space, the world had moved on to
DVRs. VCRs, well, maybe they didn’t turn out to be that bad—maybe
They actually helped us a lot—but digital video recorders, those are really
Bad. DVRs were really bad, we were told, because people were going to
Skip the commercials. The CEO of Turner Broadcasting, Jamie Kellner
Said of the DVR and commercial skipping, “It’s theft. Your contract with
The network when you get the show is you’re going to watch the spots
Otherwise you couldn’t get the show on an ad-supported basis. Any time
You skip a commercial . . . you’re actually stealing the programming.”28
Notwithstanding the rampant theft by bathroom-goers everywhere
And the success of the video industry in shutting down RePlayTV, the
First entrant into this market, TiVo succeeded, and, it turns out, didn’t
Destroy the television industry. Instead, it revitalized that industry
Because a lot of people like me who didn’t watch television suddenly
Discovered that when they could choose when and where they wanted to
See their programming, there was actually a bunch of good stuff on. And
The 2000s became the Golden Age of television
There are examples going on right now as well. Digital radio is my
Personal favorite because the original pirates in the radio industry are
Now trying very hard to shut down competition by digital and Internet
Radio, the next generation of pirates. Digital television is another
Example; the FCC told us on the basis of representations by the TV
Industry that in the absence of some protection mechanism, high-value
Content would be withheld from broadcast television and would migrate
To pay services. Notwithstanding this claim, we did ultimately, after a 22-
Year odyssey, move to digital television in 2009. Perhaps television and
Radio are now doomed too, but I’m not holding my breath
Pornographers complain of a once-lucrative market now flooded by
Amateur pornography; even sex fears it can’t compete with free.30 But I
Wouldn’t list “lack of sufficient pornography” as among our larger societal
Problems
The content industry, it seems, has a Chicken Little problem
It may, in fact, be the case that this time the sky is falling. But, if
You claim that the sky is falling whenever a new technology threatens an
Existing business model, the rest of the world can be forgiven for not
Believing you when you claim that this time around it’s going to be
Different. Now, let’s be clear, each of these technologies changed the
Business model of the industry. They caused certain revenue streams to
Decline. But they also opened up new ones
So how is the content industry going to survive? Let me offer a few

Suggestions:
First off, what won’t work:

I think it is pretty clear that shutting down the technology doesn’t
Work. Whenever you succeed in shutting down a technology that people
Want, companies develop a different technology that responds to that
Market demand
Locking down the technology doesn’t usually work either. Almost
Every time we impose digital rights management, as we did with
Computer dongles, or digital audio tape, or the Sony minidisc, or the
DivX alternative to the DVD player, or the DRM in digital music, either
The technology or the digital rights management fails because the
Controls are inconvenient and they get in the way. In the rare instances in
Which a locked-down technology succeeded (the DVD is the prime
Example), it is because the technology was so much better than the status
Quo that people would tolerate some inconvenience. And even then, it is
Worth noting that the technology that won the standards competition
Was the less restrictive of the two possible technologies
None of this is to suggest that copyright law has no role to play. In
Many of the examples I’ve given, the technology ultimately came within
The purview of copyright law, often with some sort of compulsory or
Collective license that allowed copyright owners to get paid without
Shutting down the technology or bringing the full weight of copyright
Remedies to bear. Cable and satellite television ended up with a
Compulsory license, for instance;31 radio got a government-supervised but
Privately-organized collective licensing regime as well as an exemption
From having to pay sound recording copyright owners. But the general
Lesson is that “mother, may I?” innovation regimes in which no one can
Develop a new technology unless they get the collective permission of all
The content owners whose content might be distributed with that
Technology are not going to work
Nonetheless, I think there are a number of circumstances and
Business models that are worth some serious exploration as at least partial

Solutions

One is advertising. Now, I think that advertising has its limits as a
Business model. The current trend seems to be “alright, we’ll make
Everything available for free since that seems to be what we have to do
But we’ll make it up in advertising.” There is a substantial amount of
Advertising revenue that can be found online—ask Google—but there are
Also limits to that business model. If the only people advertising are other
Content owners counting on advertising for their free products, the
Revenue has got to be coming from somewhere
More important are lowered production costs. Mark Cooper talked
About this eloquently. I won’t go in to more detail here except to point
Out that the digital revolution in the last decade has led to the largestever
Increase in the amount of content available in the world. We get far
More video content because of YouTube than we have ever had before
We get far more text content because of blogging than we have ever had
Before. We get that new content because it is much easier and cheaper to
Make and distribute it. Now cheap production and distribution won’t
Necessarily give us all the kinds and quality of content we want. But they
Give us an enormous array of content to choose from that wasn’t available
In a world in which all content had to be professionally produced
Packaged into a disk, and shipped around the world in a truck
Third, technology can change people’s relationship to content in
Ways that can make a profit. You also see technological advances
Redounding to the benefit of content industries in various respects. If you
Have not seen Avatar, you should. And if you are going to see Avatar
You should absolutely see it in 3-D in a movie theatre because the
Experience you have at home will not be the same experience. Not
Surprisingly, Avatar is the highest-grossing movie ever, and helped
Make 2009 the best financial year ever for the movie industry.
Business models can also build on the experiential relationships that
People have with content. People don’t go see movies—at least good
Movies—and then stop thinking about them. People want to be engaged
With their content. They want to have connections with the musicians
They like. They want to go to concerts and experience music live. They
Want to engage in an ongoing relationship, and there’s revenue there to
Be had by meeting that demand—providing that collaborative experience
Can be lucrative. You don’t have to worry nearly as much about piracy if
You are a maker of a massive multiplayer online role-playing game
Because the point of the game is largely the experience of interacting with
All of the other people in the game. If you play a pirated version of World
Of Warcraft, you do not get the same experience as if you play World of
Warcraft, because you aren’t interacting with the people playing the
Official version
One of the things content owners have lost in the digital world is
The first-mover advantage. The duration of the advantage of being the
First in the market with a product has gotten a lot shorter, as it is now
Much easier to copy things. But first-mover advantages do still exist, and
Companies can capitalize on them through branding. You can build a
Substantial revenue model out of having a brand and having a reputation
For quality content, even if there are others providing competing content
Companies can also make money by providing convenience to users
It turns out that many of the people who take content for free are often
People of low socio-economic status; they’re young, they’re students
People who have substantial means often pay for things—even things
That they could get for free. There’s a Web comic called XKCD that
Actually makes a living selling books and T-shirts of the comics that it
Makes available online for free.
Why is this? Because if you really like
XKCD—and you should—you’re willing to pay to have a physical book
In your hand or to wear a T-shirt
In the news media, too, I think there are revenue models to be had
That spring from this explosion of content. Because the explosion of
Content comes with a wide array of quality from very good to very bad
There are business models to be had in enabling people to figure out what
Is desirable and what is not, what is trustworthy and what is not. The
Role of the media may become, in part, a credentialing role, one that says
This is, in fact, information that you can trust; this is, in fact, a video you
Will like. And that’s a service for which people will pay even though the
Underlying content is free
It may even be the case that copying drives creativity in unusual
Ways. Kal Raustiala and Chris Sprigman have suggested that the fashion
Industry benefits from the absence of copyright protection, because
Knock-off fashions serve both to popularize the original ones and
Eventually to drive demand to replace them.38 Both dynamics may work
In other content industries. Up-and-coming musicians may like piracy if
It builds their name recognition, and it may be that the growing
Availability of content actually spurs an increase in demand for that
Content
This is just a smattering of examples: Mike Masnick and Chris
Anderson have spent some time documenting a number of ways people
Already make money from free content.
And it is worth noting that
What we want from copyright protection is a continual supply of new
Content. If that content increasingly comes from amateurs as well as
Professionals, there’s nothing wrong with that. It might even make John
Philip Sousa proud
Let me be clear: I don’t know what the future of content business
Models is going to look like. I could do worse, however, than to turn to
The words of Marc Norman and Tom Stoppard in the Oscar-winning
Movie Shakespeare In Love:
Henslowe: Mr. Fennyman, let me explain about the theatre business
The natural condition is one of insurmountable obstacles on the road
To imminent disaster. Believe me, to be closed by the plague is a
Bagatelle in the ups and downs of owning a theatre
Fennyman: So what do we do?
Henslowe: Nothing. Strangely enough, it all turns out well
Fennyman: How?
Henslowe: I don’t know. It’s a mystery.

I don’t know exactly how it will turn out, what the future of content
Industry will be. But I am quite confident that there will, in fact, be one

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