Must-Read Excerpt From Robert Levine's 'Free Ride: How Digital Parasites Are Destroying the Culture Business and How the Culture Business Can Fight Back'
Must-Read Excerpt From Robert Levine's 'Free Ride: How Digital Parasites Are Destroying the Culture Business and How the Culture Business Can Fight Back'

[Not] Paid In Full: Why Creators Must Reassert Their Rights In The Information Economy

Piracy isn't just draining record-label revenue-it's threatening the economic viability of creating content. In his new book, "Free Ride: How Digital Parasites Are Destroying the Culture Business, and How the Culture Business Can Fight Back" (Doubleday), former Billboard executive editor Robert Levine provides a rejoinder to the Silicon Valley cliché that "information wants to be free." As he points out, "The information that wants to be free is almost always the information that belongs to someone else."

In "Free Ride," Levine outlines how boardroom and courtroom battles have shaped the dysfunctional online media business. He chronicles the passage of the Digital Millennium Copyright Act, examines the rise of Napster and YouTube and reports on Google's role in funding advocacy groups that lobby against intellectual property protections. He also takes a look at how the same problems decimating the recording industry are also hurting newspapers, TV networks, book publishers and movie studios.

In an excerpt from his concluding chapter, Levine breaks down the challenges facing the culture business-and suggests survival tactics:

The Internet has been so open for so long that many people just assume its structure is the inevitable result of the technological advances that created it. That's not really the case. Technology makes certain things inevitable: broadband speeds will get faster, computers will get more powerful, and almost everything related to either one will get cheaper. But it doesn't dictate how engineers set up the resulting networks, much less how politicians regulate them. Those are our choices. And fully closed or fully open networks would be the worst two choices we could make.

Washington helped create the Internet as it exists today, by passing the Digital Millennium Copyright Act (DMCA), letting the Internet operate freely across borders, and encouraging the growth of online commerce in a variety of ways. In the next few years, a series of regulatory decisions coming to a head there and in other capitals will either lock in the status quo or open the possibility of change. Among the most important decisions are on "net neutrality": proposals that would forbid Internet service providers from favoring some services and sites or slowing down others. Other decisions involve how much control companies like Apple can exercise over how their devices interact with the Internet and whether the United States can block Web sites that violate its laws. Although online companies play up the idea of keeping the Internet "unregulated," establishing this openness would actually require regulating Internet service providers, device makers and other companies. For all their talk of innovation, Google and other technology giants have the same agenda as the media companies and Internet service providers they lobby against: regulation for thee but not for me.

Online activists present the choice about our online future as one between control and creativity, but it's really about commerce or chaos. A completely closed system would indeed defeat the purpose of the Internet; it would limit both commerce and creativity. But so would an absolutely open one, where selling digital media-or anything that can be reduced to zeros and ones-would be almost impossible in the long run. We'd have a 21st-century communications infrastructure supporting a 17th-century economy, where artists need patrons and only physical items have value. That doesn't sound like progress.

In fact-although reports of its death have been greatly exaggerated-one reason for the Web's decline relative to the app world is the fact that it's hard to sell media there and even harder to make money giving it away. Condé Nast, which owns Wired, seems to agree. An iPad app of the magazine's June 2010 issue sold more than 100,000 copies-more than its print counterpart, for the same $4.99 price. The magazine gets 70% of that, plus advertising revenue. And although apps based on subsequent issues sold fewer copies, publishers are still learning how to build appealing apps, and the iPad is still growing as a platform. Condé Nast saw so much potential in Apple's device that it made the Wired app designer, Scott Dadich, its VP of digital magazine development. Suddenly, it seems, the future involves paying for stuff.

But that future can come about only if there's an effective way to make sure more stuff is paid for than taken. That means revisiting or interpreting the DMCA to give Internet service providers, online locker services, and ad networks at least some responsibility for how their products are used. As Congress recognized at the time, it would be impractical for Internet service providers to have legal responsibility for everything they carry on their networks. But it seems increasingly irresponsible for them to do nothing. The way some Web sites and online locker services maintain willful ignorance about copyright infringement-arguing that it's someone else's problem-is no way to run a legitimate business. Giving safe harbor if they use a basic level of filtering, as YouTube does now, would be a reasonable compromise. This wouldn't slow innovation; it would encourage it. As pirate sites lost their unfair advantage, legitimate services would attract more investment and prosper. Online companies could try to make things better, not just cheaper.

Questions about the future of the online world are becoming more urgent as consumers connect televisions and other devices to the Internet. For now, film and television companies still count on a steady stream of revenue from cable, a closed system that makes piracy impractical. But devices like Google TV will increasingly bring the Internet into the living room-online locker services, Russian pirate movie sites, and all. In order to preserve the free-for-all that helps them thrive, technology companies are promoting regulations that would nearly forbid Internet service providers to stop them. "We need to be conservative in this debate and preserve what has worked in driving this economy," Lawrence Lessig said at an April 2008 Federal Communications Commission hearing, "and what has worked is a neutral network."

But this status quo works far better for technology companies than for creators. If a country had a market where about a quarter of all commerce was illegal and the rest was dominated by a few large companies, no one would call that economy a success. You can't have a functioning economy without a market, you can't have a market without some form of property rights, and those rights don't mean anything if they can't be enforced. Do we really want to risk destroying a centuries-old market for cultural products to ensure that the Internet can continue to work the way it did in 1995?

GOOGLE AND THE PUBLIC ADVOCACY organizations allied with it promote the idea of an "open Internet," which refers to several loosely intertwined ideas, including net neutrality and an absence of barriers to the exchange of data. The goal of an open Internet is promoted as a progressive idea, and the phrase is filled with positive associations: After all, who doesn't want to be open? Public advocacy groups say this openness is the key to preserving free expression online, but it allows corporations as well as people to act as they wish, which isn't progressive at all. On an Internet of sites that exchange data without restrictions, the information that wants to be free could include a record of everything you've ever done online. These notions of open and closed aren't absolutes, of course; it makes more sense to think of them as points on a continuum. Both have their advantages. Linux, the open-source operating system, has both flexibility and power. Wikipedia, the ultimate open media product, is a fantastic tool for accessing information. And crowdsourcing journalism that involves combing through massive amounts of data has been very effective.

Closed systems seem better suited to commerce, though. It's one reason DVDs became such a moneymaker for Hollywood studios. It's why video game publishers have cut investment in PC titles to focus on closed consoles like Microsoft's Xbox 360 and Nintendo's Wii. (The most successful PC game of recent years, World of Warcraft, is a closed system of its own; it charges a subscription fee.) And it's why apps sell much better for Apple's iPhone platform than for Google's Android operating system. The online world needs to support both.

THE LONGER THE CURRENT ONLINE CHAOS LASTS, the more bitter the fight between creators and copyright infringers gets. In December 2008, the RIAA announced it would stop suing individual uploaders in favor of finding a way to cut piracy by cooperating with Internet service providers. But a few small film studios and porn producers have retained lawyers to file copyright infringement lawsuits against individuals, seemingly as a moneymaking venture. From early 2010 to January 2011, a law firm called the U.S. Copyright Group filed almost 100,000 lawsuits against U.S. residents who had uploaded films such as "The Hurt Locker" and "Far Cry," and then sent letters offering to settle for $1,500. While creators have the right to seek redress for infringement, these mass suits are turning the justice system into a reverse lottery that addresses widespread losses by trying to collect absurd amounts of money from an unlucky few. Several organizations, including the Electronic Frontier Foundation, have lined up to help fight the suits, most of which will probably end up being dismissed for jurisdictional or technical reasons.

Copyright laws do need to be revised to bring some order to the Internet; we need shorter terms of protection, a way to take quicker action against commercial-scale pirates, and less draconian damages for individual infringers. Specifically, a small-claims court for copyright infringement would allow independent artists to assert their rights without burdening the court system and distinguish casual downloaders from moneymaking operations. To deal with the former, it's much fairer to sue 100,000 illegal downloaders for $50 each than it is to sue 50 users for $100,000 each, and the law should make that possible. Making such suits an unpleasant but routine event-like getting a speeding ticket-would cut down on infringement as well.

Passing new laws will be difficult: copyright holders know the current level of potential damages gives them negotiating leverage with technology companies, and online activists still hope to legalize file sharing. For the near future at least, the fight will be over how-or even if-the copyright laws we already have will be enforced. And for all the Obama administration's admiration for Google, Hollywood has enormous influence with the Democrats, and Vice President Joe Biden has always championed the protection of intellectual property. In June 2010, Biden threw down the gauntlet at a press conference and said, "Piracy is theft." He appeared with Victoria Espinel, a former negotiator in the Office of the U.S. Trade Representative, whom President Barack Obama had appointed the first "copyright czar." In a report released that day, Espinel introduced a strategy to fight online piracy and trafficking in counterfeit goods that focuses on interagency cooperation and an insistence on seeing infringement-along with patent and trademark violations-as an issue that negatively affects several sectors of the U.S. economy. (Formally, Espinel holds the title of U.S. intellectual property enforcement coordinator, with a purview that extends to patents, trademarks, and counterfeit goods off-line as well as on the Internet.) Espinel's report also recommended cooperating more extensively with foreign governments and, in a significant nod to fair use, asserted that "strong intellectual property enforcement efforts should be focused on stopping those stealing the work of others, not those who are appropriately building upon it."

Espinel, who has won respect in both Hollywood and Silicon Valley-no small feat-doesn't think we have to choose between the media business and the Internet. "One of the things that I'm trying to avoid is having people view policies-net neutrality is a good example-as creating a conflict with intellectual property enforcement," she says. "There's this view that the administration has two policy goals-one is to keep the Internet open and accessible, and the other is to enforce intellectual property laws-and one of those needs to be sacrificed for the benefit of the other. That's not my view, and I think we should be able to move forward and accomplish both of those goals, and I think that's true in a number of areas."

But some technology executives seem to resent the idea that copyright laws will be enforced at all. Many mocked Espinel's report, which said movie and video piracy cost the U.S. economy $20.5 billion a year. (The number is probably exaggerated, but even a quarter of that would be way too much.) Michael Arrington, the founder of the TechCrunch blog, wrote about an off-the-record meeting he attended between Espinel and several top technology executives and complained that "Espinel has a single agenda when it comes to copyright issues." But that agenda is enforcing the law. According to his post, Espinel reminded him, "My job title is Intellectual Property Enforcement after all."

WHATEVER HAPPENS, the future won't be what it used to be.

Back in 1993, almost everyone predicted the information superhighway would be a huge boon to the culture business. Good jobs would be created by new opportunities to sell music, movies, and other forms of entertainment still being developed. Independent artists would be able to sell their work without studios or labels. Media would improve in quality, as well as quantity.

The Internet has brought forth many wonders, from the silly to the sublime to the skateboarding bulldog on YouTube (which is both). Newspapers no longer have a monopoly on serious journalism, and their mistakes are promptly challenged. Anyone can create culture instead of simply consuming it. It's never been easier to distribute creative work. At the same time, it's never been harder to get paid for it.

The Internet has been an impressive engine of economic growth. But a great deal of that growth has gone to a small number of technology companies. They depend on informative journalism to make their search engines useful, and they depend on compelling music and movies to make digital players worth owning. But the companies that fund those cultural products have never been in worse shape. They're cutting jobs, and with them the ability to create and market new work. Those search engines and players won't be nearly as valuable without them.

The current situation is slowly robbing the Internet of its potential. Rather than encourage innovation and excellence, it rewards cost cutting and crowdsourcing. The effects can be underwhelming. In his book "You Are Not a Gadget: A Manifesto," the computer scientist Jaron Lanier points out that two of the most widely acclaimed results of the remarkable technological advances of the Internet are Wikipedia and Linux, a free encyclopedia and a new version of the Unix operating system.

We can do better.

No one believes that piracy could be stopped by a law like the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property (PROTECT IP) Act or the agreement in July between media companies and Internet service providers. And even stopping it completely wouldn't solve all of the culture businesses' problems. But regulations like these, whether private or public, would allow a working market to emerge. Creators would sell, consumers would buy and both would benefit. Music and movie companies will probably never enjoy the kinds of profit margins they did in the 1990s, but they could return to stability by persuading creators that they still have value in a world of digital distribution. Artists would have the option of working with big companies or making their own way in an online economy that allowed them to do business, not just take donations.

In a functioning market, online media would get better, not just cheaper. And this, in turn, would fuel the growth of more technology companies. This wouldn't break the Internet; it would help it live up to its potential.

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From "Free Ride: How Digital Parasites Are Destroying the Culture Business, and How the Culture Business Can Fight Back" by Robert Levine. Published by arrangement with Doubleday, an imprint of Knopf Doubleday Publishing Group, a division of Random House. It was published Oct. 25.

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