Digital Content: The Half-Full Glass

Among the pleasures of teaching and researching in a fast-moving field like Internet law is seeing predictions meet reality. When I began teaching at Wharton in 2004, Facebook was only a few months old and Google was still a private company.  There was no iPhone or YouTube, let alone Groupon or Wikileaks. Seven years later, many of my old hypotheticals have become real companies.

What surprises me are the examples in which the facts have changed, but the debates haven’t.

A decade ago, the music industry sued Napster and other peer-to-peer file-sharing services for facilitating copyright infringement, claiming they represented an existential threat.  Some warned that the campaign against file-sharing would harm legitimate innovations, but the music companies did have a point.  Back then, no legitimate digital content market existed.  The record labels argued that, until free file-sharing was beaten back, a licensed market would never emerge.

Fast-forward to today.  Napster and its ilk were sued out of existence.  The promised market for licensed music developed.  Apple parlayed iTunes into a multibillion-dollar business.  Other services such as Hulu, Netflix, Pandora, Rhapsody, Amazon and Spotify are monetizing digital content in unique, creative ways, while sending licensing fees back to the record labels and other content owners.  Even licensed mobile ringtones are a $2 billion global business.

No one could possibly claim that authorized digital-content distribution isn’t a great Internet success story.

And yet, that’s what the content industry is doing.

Proposed U.S. legislation such as the PROTECT-IP Act and the Stop Online Piracy Act (SOPA) would dramatically expand liability for companies such as search engines and online payment providers for their role as facilitators of infringement.  It would require blocking of foreign websites at the technical level of Internet domain names, which top experts criticize as a grave threat to Internet stability. By weakening the “safe harbor” provisions in current U.S. law, it would place grave burdens upon intermediaries and innovators.  It would also undermine America’s global agenda of Internet freedom by deploying the same content monitoring techniques we criticize repressive governments for using.

Reading this bill, one would think that no one pays for digital content.  Yet we know empirically that the market is thriving. Anecdotally too. Ask a roomful of college students if they’ve obtained digital content through unauthorized means.  Every hand might go up.  Then ask whether they also pay for those very same forms of content.  You could get the same response.

It’s false to assume that every infringing download is a lost sale.  The market isn’t perfect, but it’s much better than you would think from listening to the music industry.

It is a challenging time to be in any kind of content industry.  We must accept, however, that the Internet genie will never go back in the bottle.  It’s time to build upon the successes of digital distribution, rather than imposing ever wider spheres of legal liability.

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