What Filesharing Studies Really Say: Part 4 – MPAA Preserving It’s Oligopoly

This is part 4 of my meta-analysis on what filesharing studies really say.

[Originally published on ZeroPaid in May of 2012.]

We are continuing our running series on what file-sharing studies are really saying. We’ve already explored how the RIAA is a threat to innovation, RIAA litigation being a failure and how file-sharing has no affect in legal music purchasing. We now turn gears to examine a study that says that the MPAA is trying to preserve its oligopoly and transform the Internet into a more inefficient client to user system.

The study is entitled “Hollywood versus the Internet: the media and entertainment industries in a digital and networked economy”. It was published in 2006 by the Journal of Economic Geography.

Part of the abstract puts some context on the subject covered:

A key area of debate concerns the scope for strategic adaptation in oligopolies; and in particular, the extent to which such large and otherwise successful firms ignore or marginalize important shifts in the marketplace.

The abstract went on to explain that this study examines the relationship between the oligopoly that is the major movie studios and file-sharing and technology. When the author refers to the major movie studios, he is referring specifically to Disney, Fox, Paramount, Sony
Pictures, Universal and Warner Brothers. He commented that while the economics of the movie studios has shifted overall, the constant is that these studios remain the same in the industry.

The author also explains that the paper is based on 150 interviews from studio executives and related firms. The author then goes on to note that file-sharing has introduced a decentralized nature of dissemination of content. It’s popularity over the years continued to grow. A little bit down into the study, the author makes this interesting comment:

The rapid adoption of P2P technology by consumers worldwide, but particularly in Europe and North America, has imbued file sharing with a powerful sense of legitimacy and normality. The P2P networks have also improved access to the informational raw materials necessary for creative thought and expression, facilitating new forms of appropriation, tinkering and modification among consumers and existing producers (at least those with the requisite skills and hardware to undertake such activities). There are signs of a simple yet powerful desire among the growing ranks of the ‘digital literate’ to have Internet access to our cultural and historical record, and to be able to build on this resource and recombine it into new forms (Lasica, 2005).

This is certainly an interesting point. It really plays into the concepts of free and open source software as well as many of the ideals expressed through Creative Commons licenses. It’s a sort of, “this content is here as a form of expression. Feel free to take, modify and make something new out of it” idea. The idea of sharing ideas and sharing content has, in my mind, been a very compatible ideology with file-sharing and is certainly something I’ve personally adopted in creative works I’ve produced. You can also see this kind of thinking on video sharing sites like YouTube where existing content is cut and “remixed” into something new. Music-wise, I think the Madeon Pop Culture live mashup video really shows an excellent example of this:

Of course, we should point out that this isn’t the only example of remixing out there. This is just one example of many.

The paper also noted the response of the MPAA, noting the following:

The discourse promoted by the media oligopoly, in general, is rooted in the language of piracy, physical property and theft (Vaidhyanathan, 2001). In their view, every free download represents a lost transaction and in turn, theft of expensive creative property.

Thankfully, this myth has since been disproven since 2006. With the studies we have already covered not just in this series so far, but in previous studies we’ve covered as well that, alone, completely debunks the myth of one download is one lost sale. While there may be slightly more sophisticated myths conjured up by the major corporate entertainment entities since then, the fact has always remained that there is only really two possibilities when it comes to downloads and sales of content. Either the effect is minimal to non-existent or unauthorized downloading has a net positive effect on sales. Take you pick. Either way, file-sharing has never meant the death of these industries. As I have always personally said, if unauthorized downloads was killing the music (or movie industry), the industry would be dead by now.

To go further on this point, the paper also addresses whether or not unauthorized downloads meant the decline of the music and movie industry:

In practice, the economic relationship between P2P file sharing and industry revenues is still extremely unclear (see Condry, 2004; Ganley, 2004; Oberholzer and Strumpf, 2004). The well-documented decline in record sales from 2000 – 2003 roughly coincided with the rise of P2P file-sharing technology, but was also likely shaped by a broader global economic slowdown and competition from other forms of entertainment, such as DVDs, video games and ring tones (Freedman, 2003). Meanwhile, there are no signs (as yet) to indicate that the presence of file sharing is leading to a direct and quantifiable reduction in revenues in the film industry.

We’ve seen this in the years since the publication of this study and it has, to date, been the most plausible explanation of the decline of the music industry in the early 2000’s. The increase in competition (i.e. from the gaming industry) competing for the same pool of disposable income amongst consumers. When there are more players competing for the same pile of cash, there’s going to be fewer dollars going to traditional players in the entertainment industry. Ask yourself, how big is the gaming industry anyway? You can’t tell me that the money just magically appeared out of thin air for them. All this happened while file-sharing existed.

So, what is the solution this author proposes? Does the author propose shutting down websites? Filtering the internet? Criminalization of certain software? Nope. This is the solution that was proposed at the time:

P2P file sharing can actually be harnessed into a legalized and secure form. This is made possible by what is known as ‘digital rights management’ (DRM) software technology, which encodes computer files into a secure format, with a set of usage rules (stating when, where and how the file can be accessed) and a price determined by the copyright owner. The file can then be freely shared over the Internet, or even offline via recordable media, but remains locked until a usage license is purchased. DRM, however, arguably needs to balance the interests of creators, consumers and corporations. DRM protection should not simply attempt to thwart piracy and constrain the consumption of digital commodities in an authoritarian fashion, without regard for the delicate balance which has long existed in a physical and analogue world of distribution (and which, in theory, underpins the traditional doctrine of copyright law (see Lessig, 2002). Rather, ‘thin’ forms of DRM (with deliberate imperfections) could help to imprint fair uses and derivative uses by consumers and creators into software code, which increasingly regulates our digital lives and activities (Lessig, 1999).

Before you start scrolling down and posting objections to DRM in the comments section, just remember that this was proposed in 2006 which is about when DRM was seen as a solution for everything for some. It should also be noted that this proposed idea was never allowed by the major media corporations. The closest that I can recall was Napster II which was a paid subscription service. The problem and major differences was that if you stopped paying for the service, the music would disappear. Also, it didn’t allow any form of fair use, but rather, it blocked any ability to exercise fair use rights afforded to Americans by law. I would imagine that the author, these days, might agree to the idea of simply putting a levy on ISPs and allow users to download anything they ever wanted which is very similar to the idea being proposed above. Of course, as we’ve seen in the previous study in this series, major entertainment corporations have a tendency to impede innovation which might explain why sensible solutions such as this was never implemented. So, I would say that, given the time, this was actually a very good attempt to offer a solution even though today, as we all know, DRM simply doesn’t work as it has been hacked, cracked and otherwise broken so many times over. DRM is seen as nothing more than a red waving flag to a bull more than willing to accept the challenge that such DRM would never be cracked.

To go along with the line of thinking of the previous study we have looked at, here’s what the author has observed with regards to the studios and the internet:

The studios have publicly acknowledged the need for legal alternatives to P2P file
sharing, where consumers can purchase and download films in a digital commodity form, in a flexible and affordable manner, for viewing on a computer or a television. Behind this rhetoric of consumer choice, however, the studios are attempting to mend the open and decentralized nature of the Internet and reshape it into a ‘walled garden’, where there is total control over content (with the help of DRM technology). The studios have used their power in the industry to impose what may be termed a ‘protectionist design’ (Utterback, 1996) that is, a business model that seeks to protect the structure of the industry, rather than exploit the disruptive power of a new technology.

That, I think, has been the sad truth for so many years now. Little has really changed since 2006. Now, the internet is dealing with countries being lobbied to implement site blocking while other sites like MegaUpload are getting shut down even though they seemed to have abided by the law (as we all know, the case against the founders has been crumbling for months now). To further the point on how the movie studios resist change, the author makes the following point further down in the study:

The strategic response of the studio oligopoly to the Internet is directly shaped and constrained by the existing windowed structure of film distribution, which is dominated by a physical commodity form: sales of the DVD format. The studios continue to resist any form of engagement with legal P2P file sharing (despite the availability of evidence indicating its myriad benefits) owing to potential ramifications for DVD sales and a loss of control in the distribution process. The studios have basically favoured a centralized (server-client) rental model over a decentralized (P2P) sale-based model, which is more efficient and robust, because it makes no change to the existing structure of release windows and hence does not threaten the $15 billion revenue stream currently generated by sales of DVDs in the US each year.

The author eventually concludes:

The collision between Hollywood (a mature oligopoly overseen by six studios) and the Internet (a decentralized P2P architecture) exhibits these general theoretical characteristics. The rise of P2P file sharing has been problematic both for the studios and their corporate parents because it portends a radically different mode of economic reproduction for intellectual property, built around secure P2P file sharing, and in turn, a loss of oligopolistic control. These firms have attacked the P2P networks under the discursive (and seemingly unassailable) banner of piracy, property rights and theft. In particular, they have argued that P2P file sharing is morally wrong and economically reprehensible, and poses a hazard to future investments in creativity. In practice, however, the campaign against file sharing is in many ways merely a subplot to a much larger and contentious drama, centred on how we create, fund, use, own and share creative works in a digital and networked economy.

This really sums up the findings in the study. In fact, I think the more optimistic observers of this debate have been waiting, hoping, explaining, explaining again, bashing their heads against the wall and explaining continuously, showing, proving, and just trying to encourage the major entertainment companies to adopt a more progressive approach to file-sharing. As the corporations continue to toil away with how to destroy a system (the Internet) designed to survive a nuclear bomb, many keep wondering why these corporations haven’t even bothered to truly harness the power of technology in an effort to finally stop treating its own consumers as the enemy.

(for those who use the Netflix example, just give this TechDirt article a read with how Hollywood has been treating Netflix these days)

Drew Wilson on Twitter: @icecube85 and Google+.

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