The sheer, craven stupidity of government regulation of online music

The Times has today got a hold of a leaked government Green Paper on the “creative industries”. A draft copy, obtained by The Times, states: “We will move to legislate to require internet service providers to take action on illegal file-sharing.” A spokeswoman for the Department for Culture, Media and Sport has responded saying this is an early draft and “the content and proposals for the strategy have been significantly developed since then” and won’t comment further. A consultation paper setting out the options is promised within months, but Ministers are expected to make an explicit commitment to legislate with the launch of the Green Paper next week.

Now, normally Green Paper’s are considered a discussion document than a statement of official policy, and are followed up by a more formal “White Paper”. But the fact that this nonsense has appeared so early does not bode well.

Why is it nonsense? Because digital music is either going free, or as near to free as makes no odds, aided and abetted by the success of DRM-free offerings from, oh, some large players like Amazon, Apple, Radiohead and even a few record companies.

I don’t normally side with ISPs on this issue, but they are between a rock and a hard place. According to the Green Paper, ISPs would be legally required to take action against users who access pirated material, issue warnings for the first offence, a suspension for the second infringement and the termination of their internet contract if caught a third time. ISPs who fail to enforce the “three-strikes” regime would be prosecuted and suspected customers’ details could be made available to the courts. The Government has yet to decide if information on offenders should be shared between ISPs. ISPs are understandably asking for self-regulation as a get-out clause for fear of being sued by the last remaining enclaves of stupidity inside the record industry.

I ask you, has the government gone completely loony? Do they have any idea of the knots they are going to get themselves into by trying to rule on this?

Trying to legislate for billions of DRM-free files flying through the Net, attempting to work out which ones have been paid for and which are “filed-shared” is a recipe for legislative chaos. For instance, what happens if a college kid wants to send his mum the MP3s his band has been working on? How does the ISP work out this is non-DRM’d, non-copyrighted music? They email her a warning? She gets annoyed, cancels the ISP contract? Do Turkeys want to vote for Christmas? Will the courts be filled with crazy cases between ISPs and record companies? You bet.

I look forward to this Green Paper on the creative industries because by the sounds of it it is not about encouraging creativity in the UK but about protecting out-dated industrial practices which can no longer stand in today’s technological environment.
As Mike Arrington points out in a post entitled “The Inevitable March of Recorded Music Towards Free,” the only way the music industry can force this issue is by convincing governments to legislate, and that goes against all economic theory:

The DRM walls are crumbling. Music CD sales continue to plummet rather alarmingly. Artists like Prince and Nine Inch Nails are flouting their labels and either giving music away or telling their fans to steal it… The economics of recorded music are fairly simple. Marginal production costs are zero: Like software, it doesn’t cost anything to produce another digital copy that is just as good as the original as soon as the first copy exists, and anyone can create those copies (meaning there is perfect competition and zero barriers to entry). Unless effective legal (copyright), technical (DRM) or other artificial impediments to production can be created, simple economic theory dictates that the price of music, like its marginal cost, must also fall to zero as more “competitors” (in this case, listeners who copy) enter the market. The evidence is unmistakable already. In April 2007 the benchmark price for a DRM-free song was $1.29. Today it is $0.89, a drop of 31% in just six months. P2P networks just exacerbate the problem (or opportunity) further, giving people a way to speed up the process of creating free copies almost to the point of being ridiculous. Today, a billion or so songs are downloaded monthly via BitTorrent, mostly illegally. Eventually, unless governments are willing to take drastic measures to protect the industry (such as a mandatory music tax), economic theory will win out and the price of music will fall towards zero.

When the industry finally capitulates and realizes that they can no longer charge a meaningful amount of money for digital recorded music, a lot of good things can happen.

First, other revenue sources can and will be exploited, particularly live music, merchandise and limited edition physical copies of music…

Second, artists and labels will stop thinking of digital music as a source of revenue and start thinking about it as a way to market their real products. Users will be encouraged (even paid, as radio stations are today) to download, listen to and share music. Passionate users who download music from the Internet and share it with others will become the most important customers, not targets for ridiculous lawsuits.

[Complaining about fairness] Arguing against basic economics makes about as much sense as arguing against gravity. Zero marginal cost + competition (anyone can create a copy of a song) results in a zero price, unless government creates artificial barriers to a free market.