Why File Sharing Isn’t Bad for the Economy

I notice from my Slashdot feed that the RIAA have been giving up on a lot of cases recently. For one they failed to extract $222K from someone who shared 24 files on Kazaa. There was also a case (the same one maybe?) in which the defendant subsequently turned on the RIAA following his success in court and sued. There have been two cases that I know of since the beginning of the Christmas holidays in which lawsuits have been dropped by copyright firms. Fairly recently a Dutch study (thank you Slashdot) found that actually file sharing is good for the Dutch economy. Then someone wrote a book/blog post/ebook/news article about the concept of free stuff in an economy and how it works really quite well. It appears that the whole DRM thing is rapidly turning on its head, against law firms and in favour of open source and freebies. Here’s a concise exposition of all I’ve gathered that seems to make sense regarding this phenomenon.

17,000 illegal downloads don’t equal 17,000 lost sales

– US District Judge James P. Jones

Mike Henley, a former member of CompSoc, pointed out something that I think makes a lot of sense. If music downloaders suddenly no longer could download it for free, I suspect many of them would just stop downloading full stop. The reason they download is more because it’s convenient than any reason concerning the price: there are simply so many good deals out there that good music is already available for decent prices. Therefore it can be deduced that they are actually not harming the industry – they aren’t reducing demand and removing themselves from the market by downloading for free since the market wouldn’t contain them in the first place.

– Me

I think everyone who’s outraged about people downloading and enjoying stuff that they should be paying for and blaming them (amongst Maths, public schools and gnomes) for the economic downturn should really consider the fact that, As Michael observantly pointed out in a comment, most people who currently download for free just wouldn’t buy music in the first place if the download option didn’t exist. If you don’t know you’ll definitely like a product, why risk £12.99 buying it? This judge has definitely got it right.

The way I see it (not why it’s right/wrong but why it’s taking place) is that a new market for music is being created involving mostly bittorrent and uploaders. The ‘product’ is really a few megabytes of data – an mp3 file. The cost to the producer (warez-bb.org uploader for example) of sharing this product is approx. zero. (compare £10 with the millions recording companies must spend on equipment, overheads, disks, labour etc) Chances are they downloaded it themselves in the first place. Every time someone downloads the share, nobody has to pay to get it copied. So there are no production costs, and ‘competition’ (kudos is the new dollar – believe me it’s true – warez-bb forum uploaders survive on the number of thanking replies they get) results in a price of zero and a well-archived and user-friendly method of obtaining free music.

Dutch Study Says Filesharing Has Positive Economic Effects


Interesting as the economics of this may be, I’m not prepared to learn Dutch. However from what I can deduce: those who opt to download are probably more exposed to online marketing and are thus more likely to buy products that can’t simply be downloaded for free – concert tickets, firefox.com gadgets… To make things better, the actual act of transferring data via downloading costs both parties virtually nothing. A CD on the other hand would involve paying for the media, case, P&P, etc.

I’m reading a book (yes, another one – still haven’t finished the other[s]) called ‘Wikinomics’. It’s about open source and collaboration. I think it’s fairly clear that the internet is bringing a whole new business model to the world (there was an article in the FT on this but I didn’t bookmark it) which revolves around goods and services which the consumer doesn’t actually pay for. Google deliver unbelievably powerful search power to millions (billions?) of users around the world, for free. How nice of them. In fact, our young enterprise idea was (still is come to think of it) based on this system of providing free stuff and using advertising/sponsorship to earn the actual income.

Finally, it’s probably a safe bet that the RIAA and MPAA are fighting a losing battle. Digital music and films are just so easy to copy and distribute that whatever crazy measures ISPs, Microsoft, Sony, the RIAA, the MPAA and Apple dare put into place, a workaround will be found, probably within minutes, and probably in a secret underground hacker convention in Germany or China. Besides, lawyers aren’t exactly popular, especially if employed en masse and paid an unreasonable fee to crucify people like you and me.

I think I’ll leave you with a thought from xkcd.com:


3 Responses to Why File Sharing Isn’t Bad for the Economy

  1. kirk says:

    This is a classic example of market failure. People rate music and movies so highly yet they act selfishly and they don’t pay for them. When everyone acts selfishly, then the whole industry is put in danger.
    The only way the media industry can adjust is by changing their business by focussing on things like concerts, but not all musicians can do concerts. John Lennon can’t do any more concerts but Yoko still deserves some cash. This is why I will always support these prosecutions because it fixes the market failure.
    Buy some media, Special B. You damage what you love otherwise.

  2. Bryant Tan says:

    But the question is, does it really fix the market failure? I personally don’t think so:

    The prosecutions result in incredibly high legal fees so financially industry may only recover a tiny amount of compensation for losses which one can’t really calculate accurately in the first place.

    The question now really is: does it provide adequate incentive to stop a significant amount of music pirating? To be honest I don’t think it even scrapes the surface. There are just so many methods of downloading anonymously and hiding this (encryption, online storage, disk shredding etc.) that the people who *really* damage the market – the ones who refuse to buy music and download everything rather than the ones who just want the convenience of grabbing a couple of tracks without having to get out the credit card – are far less likely to be caught because they are (probably) well-acquainted with the risks thus (I’d imagine) well-prepared.

    Of course, what would be ideal would be a perfect way to enforce legislation involving low costs and high success rate. Either there isn’t one, or it’s not been put into force yet but in any case it’s clear to me that the current struggle is not going to be won through en-masse litigation.

    Meanwhile, I’ll have you know that the quality of CDs of classical music is far superior to most of the stuff you can find on bittorrent / rapidshare. Plus the effort required to search for a good recording of an obscure but beautiful baroque piece (for example) isn’t really worth it (compare to 5 minutes buying it on amazon). Or if you want a CD to play in the car – burning CDs is a bore. The market in this case does work well because the ‘free’ alternative is far too much hassle and incomplete owing to the music tastes of most file sharers.

  3. kirk says:

    I agree it does not fix the market failure, although I am sure it has a significant effect of keeping some people who do not understand torrenting well away.

    The people who download a lot do damage the industry the most and simultaneously understand how to be as anonymous as possible. But this is no reason to not reclaim money off other people who are breaking the law. [Even though the fines are often massive lol]

    The legal fees are cheap compared to the amount of press. I bet most of these music organisations now have full-time lawyers who prosecute ppl on a full-time basis.

    You are correct, BT, about classical music for now however soon it will be the norm to rip with FLAC or equivalent quality. Over time the majority of music will be online to be torrented. Burning a CD is not that much of a hassle to people who do it all the time.

    I guess albums and singles will have to start giving away T-shirts or something which can’t be downloaded with them in order to get ppl to buy physical music in the future. :D

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