Insider Interview: A closer look at file-sharing

An interview with Annelies Huygen (TNO) and Jos Poort (SEO Economic Research) about the economic and cultural implications of file-sharing for music, films and games, following the recent publication of their study 'Ups & Downs'.

The headline 'File-sharing good for Dutch economy' featured in some newspapers provoked a lot of discussion. Did this come as a surprise?

This headline did not accurately reflect our position and did indeed lead to some semantic confusion. Not only in the Netherlands, but in France, Spain, the United States, Finland and Sweden as well. People over there seemed to think that the Dutch government had given illegal file-sharing its stamp of approval, but 'good for general welfare' is not the same as 'good for the economy'.

So that was not what you meant at all?

No. We were talking about a welfare analysis, an instrument often used to calculate the total costs and benefits of a certain phenomenon to society. Non-economic effects are expressed in monetary terms as best as possible. Within the framework of our welfare analysis, we only looked at music. It is too soon to do a welfare analysis of games and films, but there may be some parallels.

Could you summarise the outcome of your analysis?

The sharing of music files yields a benefit of 200 million euro by providing people with free access to music. It results in a maximum of 100 million euro's worth of costs and damages to the music industry. This means the net benefit to society is at least 100 million. This 200 million is also the calculated willingness to pay, so companies that manage to devise business models that tap into customer needs stand to gain a maximum of 200 million.

So you did establish that the music industry suffered financial damage in this case?

If you look at turnover development in the music sector, this does seem likely. You might wonder what caused the downturn in the first place and who is responsible for it. All evidence shows that people want access to music, but they want more than just some expensive plastic discs.

But don't you think the consumer is only interested in free downloads?

No, not necessarily. Many consumers are willing to pay for a good product they can have convenient access to. And besides that, a growing number of people are beginning to realise that some remuneration is required for the use of digital content. Interestingly enough, this moral awareness seems to apply to games more than it does to music. Downloaders seem to understand that developing games costs money that has to be earned back in some way. People often do not show the same consideration when it comes to films.

This is interesting, because the basic principle is the same. How do you explain that?

We assume that young people identify with games designers more readily than with film or music producers. Unlike people who download films, people who download games often go out and buy the real deal afterwards. This behaviour can be attributed to moral awareness and the knowledge that games cannot be produced for free.

In a sense this signifies a new, spontaneous compliance with copyright laws that were under discussion among downloaders. What is your take on this?

Could be, but in any case our report was in no way intended to undermine copyright laws.

So you are saying illegal downloading is wrong?

Our study takes existing copyright laws as given. This means that downloading for private use is condoned with the exception of games. There has been a recent ruling on downloading in which the judge decided that making private copies of illegal material constituted an illegal act. This ruling is currently under appeal, so it is not yet a foregone conclusion. The message we would like to impart is that criminalising individual downloaders is not the path we as a society should be taking.

Who do you think is the real problem?

The problem lies with people who upload material professionally, who offer popular content on websites or provide access to popular content collections via Usenet. They do not pay for the use of copyrighted material, but they do make a lot of money from it by means of advertisements and access fees. This group is guilty of stealing other people's creative products with the aim of enriching themselves; this is the group we should target. In our opinion, civil action is an option that has been underused so far.

It is important to note that not every uploader intends to infringe upon the copyrights of others: many people upload without being aware of it, as is often the case with peer-to-peer networks. This group requires education rather than legal action. There is also a subculture of collectors who download much more material than they will ever use. This group is intent on hoarding, but most of them have no malicious intentions.

How can consumers best be served?

By providing them with easy and affordable access to digital content. The manner in which music and films are consumed has changed tremendously over the past few years and content providers need to go with the flow.

What are your ideas on exactly how providers should go with the flow?

They could introduce flat fee access, for instance, which would allow consumers subsequent access to a collection of content for them to enjoy. They could introduce reduced fees for students and frequent users. In this way, enjoying content is made easy and the proceeds that are generated could be divided between copyright owners.

Won't dividing the proceeds between copyright owners be very tricky?

That is the copyright owners' problem. They will have to get used to the fact that business models of the future are going to involve many more parties than before. Some measures can be taken, such as keeping track of the number of downloads and creating stimulation funds. The industries will have to yield their traditional positions and start thinking about 360 degree deals that allow them to profit from content, merchandise or related events in other ways.

How do you see the role of ISPs in these developments?

All too often, internet service providers still seem hostile towards content providers. They should be allies. Large bandwidth is not used to read online newspapers, but to enjoy content such as films, music and games. Up till now, ISPs have for the most part been able to dodge responsibility and place the problem in the content providers' corner. They need to make concessions and become more cooperative, because the current situation will become untenable at some point. This also requires content providers to be more open to collaboration; they too have been known to dig in their heels.

You offered your study to the Minister of Education, Culture and Science. What was his response?

We offered the report to Minister Plasterk at the Noorderslag Festival. He indicated that he thought it was useful and provided a sound basis for further research. He expressed particular interest in stimulating new business models, along the lines of  'It's okay to have fun, it's okay to make money'.

Do you have a final message for content providers?

Try to stay on friendly terms with the people who enjoy your products. Try not to pay too much attention to small subgroups of avid downloaders like collectors, but crack down on parties who upload professionally. And please remove those accusatory ads preceding the main feature in cinemas and on DVDs!

Many thanks for this interview!

Annelies Huygen is a lawyer, economist and master researcher affiliated with TNO.

 

Joost Poort is a philosopher and physicist affiliated with SEO Economic Research as head of Regulation & Competition.

The study can be downloaded through our knowledge database (in Dutch)