Promises to Keep:
Technology, Law, and the Future of
Entertainment
William Fisher
July 2, 2003
Outline
I. Potential Benefits of New Technologies
II. Background: Copyright Law circa 1990
III. Cycles of Innovation and Resistance







DAT Recorders / AHRA
Encryption circumvention / DMCA §1201
Music Lockers / MP3.com litigation
Webcasting / DPRA-DMCA §114; CARP ruling
Centralized File Sharing / Napster-Scour litigation
P2P / P2P litigation; limited authorized services
CD Burning / CD copy protection
IV. Defects of the Resultant System
V. Where Do We Go from Here?
A. Private Property
B. Regulated Industry
C. An Alternative Compensation System
Technologies
 Downloading: Transmission over the Internet of a
digital copy of a recorded musical performance,
followed by storage of that file on the recipient’s
computer, enabling the music to be replayed
repeatedly on demand
 Interactive Streaming: At the request of the
recipient, transmission over the Internet of a digital
copy of a recorded musical performance, which is
then “played” but not stored
 Noninteractive Streaming: Same process not at the
request of the recipient
Distribution of the SRLP of a Typical CD
Music Publisher: 4%
Recording Artist: 12%
Retailer: 38%
RC Profit: 1%
Manufacturer: 8%
Marketing: 8%
A&R: 5%
Distributor: 8%
Overhead: 14%
Functions of Record Companies
 A&R (Artists and
Repertoire)
 Production
 Promotion
 Distribution
 Risk Spreading
Rapidly dropping studio
costs
Less dependence on
(expensive) radio promotion
Inexpensive distribution
through the Internet
Fewer “losers”; less need
for insurance
Internet Distribution
Results: increased revenues for
writers and artists, decreased prices
for consumers, or both
Music Publisher: 4%
Recording Artist: 12%
Retailer: 38%
RC Profit: 1%
Manufacturer: 8%
Marketing: 8%
A&R: 5%
Distributor: 8%
Overhead: 14%
Internet Distribution of
Unsecured Digital Files
Benefits
(1) Cost Savings
(2) Eliminate
Overproduction and
underproduction
(3) Convenience &
precision
(4) Increase number &
variety of musicians
(5) Semiotic Democracy
Dangers:
(1) Threaten Revenues of
Creators
--fairness
--incentives
(2) Threaten Moral
Rights
(3) Threaten Audience
Interests in stable
culture
Copyright Law circa 1990
Objects of Protection
 Musical compositions
 Sound recordings
 Motion pictures
Exceptions and Limitations
 First-sale doctrine
 Compulsory licenses
jukeboxes; PBS license;
cable and satellite
retransmissions; “covers”
 Fair Use
Rights
 Reproduction
 Derivative works
 Distribution
 Public Performance
Figure 2.1: Legal Rights in the Music Industry
Composer
Assignment of musical-works copyright
Publisher
Performance
license
Reproduction
license
Sheet Music
Printer
Harry Fox Agency
Import
license
BMI;
ASCAP;
SESAC
Blanket licenses
Radio
or TV
Station
Restaurant
Recording
Artist
Assignment
of sound-recording
copyright
Synchronization
license
Mechanical
license
Record
Importer
Movie
Studio
Record
Company
Movies
Director
Composer
Actors
“Location”
owners
Screenwriters
Record
Company
Novelist
“Work for Hire” agreements
Music
Publisher
Producer
Distribution agreement
Studio
Advertiser
Theatres
HBO, Airlines
Merchandise
manufacturer
Sales
Record
company
TV Networks
Video Stores
Cable
company
Figure 2.5: Compensation System for Network Broadcasts of Films
Studio
Advertisers
TV Networks
product
purchases
free programming
(with embedded ads)
$
Viewers
Sony
Holdings of Sony
 Manufacturer of a device that can be used to
violate the copyright laws is liable for
contributory copyright infringement if and
only if the device is not capable of
significant noninfringing uses
 Timeshifting copyrighted programs is a fair
use
Audio Home Recording Act (1992)
 Serial Copyright Management System
 Tax and Royalty System
 Safe Harbor for Noncommercial Coping
AHRA 1008
 “No action may be brought under this title alleging
infringement of copyright based on the
manufacture, importation, or distribution of a
digital audio recording device, a digital audio
recording medium, an analog recording device, or
an analog recording medium, or based on the
noncommercial use by a consumer of such a
device or medium for making digital musical
recordings or analog musical recordings.”
Copyright Law circa 1990
Objects of Protection
 Musical compositions
 Sound recordings
 Motion pictures
Rights
 Reproduction
 Derivative works
 Distribution
 Public Performance
Exceptions and Limitations
 First-sale doctrine
 AHRA
 Compulsory licenses
jukeboxes; PBS license;
cable and satellite
retransmissions; “covers”
 Fair Use
Encryption Initiatives
 DVDs: CSS
 SDMI
 RealMedia
copyprotection
switch
 Ebook reader
Circumvention
 DeCSS;
Smartripper
 Felten
 Streamripper
 Sklyarov
Anti-Circumvention: §1201
 Prohibitions:



Circumventing access-control technology – §1201(a)
Manufacturing or “trafficking” in technology that circumvents
access controls – §1201(a)
Manufacturing or “trafficking” in technology that circumvents
technological protections for rights of copyright owners –
§1201(b)
 Exceptions include:




Reverse engineering in order to achieve interoperability §1201(f)
Encryption research
Ambiguous reference to the survival of fair use – §1201(c)
Biennial rulemaking establishes limits to ban on acts of
circumvention – §1201(a)(1)(C)
Anti-Circumvention: §1201
 Civil Remedies:




Injunctions
Impoundment and/or destruction of devices
Damages (treble for repeat offenders)
Attorneys’ fees, costs
 Criminal penalties (for willful violations for
commercial advantage or personal gain) -- §1204


First offense: up to $500,000 and 5 years in prison
Second offense: up to $1M and 10 years in prison
Streambox (WD Wa 2000)
 Streambox “VCR” mimics authentication
procedure of RealMedia files and disables
copy-protection switch
 Held: violation of §§1201(a) & (b)
 Sony doctrine not applicable
Links to Illegal Material
Visitor
2600 Magazine
Site #1
advertising
advertising
Web
page
Web
page
?
Web
page
Web
page
Decryption
Program
Plaintiff
Reimerdes (SDNY, August 2000)
 Providing a link to a website that, in turn,
enables visitors to download copies of
encryption-breaking software = “trafficking”
in violation of §1201(a)(2)
 Claim that purpose was to create Linux DVD
player not credible
 §1201 trumps fair use
 Reverse-engineering exemption does not
justify public sharing of the information
Reimerdes (CA2, 11/28/2001)
 Uphold issuance of the injunction
 §1201, as applied, does not violate 1st amend:



Content neutral
Advances a “substantial governmental purpose”:
assisting copyright owners in preventing access to their
“property”
Does not burden more speech than necessary for that
purpose
 Other constitutional challenges were not properly
raised at trial:


§1201 exceeds Congress’ power under Commerce Clause
and Art. 1, Sec. 8, Clause 8
§1201 unconstitutionally curtails “fair uses”
Felten
 Sept. 2000: SDMI issues challenge to break watermark
prototypes
 Felten breaks codes, proposes to publish results
 RIAA sends Felten a letter, suggesting that publication
“could subject you and your research team to actions
under the DMCA”
 June 2000: Felten brings declaratory judgment action
against RIAA, SDMI, and U.S. in NJDCt
 Defendants insist they have no intention to sue
 August 2001: Felten presents results at a conference
 November 2001: Suit dismissed because of absence of
“case or controversy”
Sklyarov
 Adobe’s eBook Reader prevents copying of
electronic books
 Sklyarov developed for ElcomSoft a program that
enables the copying of eBook files
 Sklyarov (temporarily in U.S. for Def Con
conference) arrested and indicted in NDCal for
violating §1201(b) – and “aiding and abetting” a
violation; Elcomsoft charged with conspiracy
 Dec. 2001: Charges against Sklyarov are dropped
 Feb. 2002: Prosecution argues DMCA applies
globally
UMG Recordings v. MP3.com


Nonpermissive copying violates §106
No fair-use defense:
1) Copying was for a commercial purpose; not
transformative
2) Copied material is highly creative
3) Songs copied in their entirety
4) Undermines legitimate “potential market”



Settlements with 4 of the plaintiffs
Finding of “willful infringement” of Universal
5/2001: Universal buys MP3.com for $372m
“Live 365”
Electro
Jungle
Spoken Word
Alternative
Experimental
Latin
Swing
Ambient
Folk
Metal
Talk
Asian
Funk
Music To ... To
Techno
Blues
Goth
New Age
Trance
Breakbeat
Government
Oldies
UK Garage/2-Step
Christian
Hard House
Pop
Valentine
Classical
Hip-Hop
Punk
Various
Classic Rock
Holiday
R&B
Western
Comedy
House
Rap
World
Country
Indie Rock
Reality
50s
Dance
Industrial
Reggae
60s
Downtempo
International
Religious
70s
Drum 'n' Bass
Irish
Rock
80s
Dub
Jazz
Soundtracks
90s
Examples of “Folk” Webcasters
 Makossa Jukebox (offering “100% Cameroonian
ethnic music: makossa, bikutsi, manganbeu, assiko
and other freestyles”)
 Pagan Paradise Samhian (offering “a magical
mix of neo-Pagan, XTC, Tull, McKennitt, Yes,
Mediaeval Baebes, Genesis, Heart, Rush [and]
traditional folk”)
 Radio Free Boonie (offering a “one-hour show
for the 0 to 4 crowd and their respective
grownups”)
Copyright Law circa 1990
Objects of Protection
 Musical compositions
 Sound recordings
 Motion pictures
Rights
 Reproduction
 Derivative works
 Distribution
 Public Performance
Exceptions and Limitations
 First-sale doctrine
 AHRA
 Compulsory licenses
 DPRA Limitations (114)
jukeboxes; PBS license;
cable and satellite
retransmissions; “covers”
 Fair Use
Types of Digital Audio
Transmissions of Sound Recordings
Level 3: Copyright Owners may refuse to
issue licenses – or may demand freely
negotiated fees
Level 2: Copyright Owners must accept
“compulsory licenses” set by an Arbitration
Panel
Level 1: Exempt transmissions
Librarian of Congress, 2/24/2002
Per Performance Ephemeral License
Fee
Webcasters: retransmission of radio
0.07¢
8.8% of
performance fee
Webcasters: all other webcasts
0.07¢
8.8% of
performance fee
Commercial Broadcasters:
simulcasts
0.07¢
8.8% of
performance fee
Commercial Broadcasters: all other
webcasts
0.07¢
8.8% of
performance fee
Noncommercial Broadcasters:
simulcasts
0.02¢
8.8% of
performance fee
Noncommercial Broadcasters: all
other webcasts
0.02¢
8.8% of
performance fee
CARP Ruling, 2/20/2002
 Suppose HipHop.com distributes ad-free
popular music to (on average) 10,000 listeners,
24 hours a day




Aprx. 15 songs per hour
360 songs per day
131,400 songs per year
1,314,000,000 performances per year
 Performance fee: $919,800 per year
 Ephemeral fee: $80,942 per year
 Total: $1,000,742 per year
Library
User
User5
Library
User
User7
User
User8
Library
Napster Website
Directory
User
User4
Library
Library
User
User3
Library
User
User1
Library
User
User9
Library
Index
User
User6
User
User2
Library
A&M Records v. Napster, Inc.


Claim: contributory copyright infringement;
vicarious copyright infringement
Napster’s defenses:
1)
2)
3)
4)
DMCA §§512(a), 512(d)
AHRA §1008
Sony defense
Copyright misuse
A&M Records v. Napster, Inc.
 7/26/00: Judge Patel rejects all of the defenses, grants
preliminary injunction against “facilitating … copying,
uploading … plaintiffs’ … compositions and recordings”
 7/27/00: CA9 stays the injunction
 2/12/2001: CA9 modifies and remands
 3/5/2001: Patel issues modified injunction
 6/28/2001: New Napster software with file ID technology; old
software is disabled
 7/2002: Napster goes offline
 1/2002: Patel permits discovery on copyright-misuse issue;
settlement discussions intensify
 2/2002: Settlement fails; case resumes
 5/2002: Bertelsmann buys residue of Napster
Fasttrack
User 1
User 2
User 3
User 9
Central
Server
User 8
SuperNode
User 7
SuperNode
SuperNode
User 4
Adapted from Webnoize
User 5
User 6
Peer-to-Peer Copying Systems
Parent technology:
Gnutella
 Aimster/Madster
 Kazaa/MorpheusMusic City/
Grokster/Altnet


80,000,000 downloads
3.6 billion downloads in
January 2002
 Audiogalaxy

30,000,000 downloads
 Japan MMO
 MPAA/RIAA suit
 MPAA/RIAA suit (Cal)
 Dutch court enjoins
software downloads;
sale to Sharman
Networks (Australia);
investigation by APRA
 RIAJ & JASRAC suit;
April 2002 injunction
 RIAA suit in NY;
settlement
Authorized Services
 MusicNet

EMI, AOL Time Warner,
BMG, RealNetworks
 Pressplay

Sony, EMI, Vivendi
Universal (MP3.com),
Yahoo
 Listen.com

Subscription streaming,
$10 per month
 [Ongoing civil
investigation by USDOJ]
Secure (nontransferrable)
short-term digital
downloads and streaming
Subscription fees, $10$25 per month
Limits on permanent
downloads and CD
burning slowly lifting
Copy-Protected CDs
 Rapidly spreading experiment in US

10,000,000 CDs produced by Midbar so far
 Similar initiative in Japan
 Consumer backlash
 Philips, owner of patents on much of CD
technology, protests deviations from Red
Book standards
 Likely shift toward DVD-Audio
Defects of the Current Regime
 High transaction costs
 Price to consumers of access to recorded
music remain high
 No “celestial jukebox”
 Encryption and ephemeral downloads
reduce flexibility, curtail “fair use” and
impede semiotic democracy
 Continued concentration of music industry
reduces consumers’ choices
 Limited effectiveness: P2P threatens artists’
revenues
"Besides, what's Plan B?”
-- Alan McGlade, Chief Executive of
MusicNet, July 1, 2002
Outline
I. Potential Benefits of Internet Distribution
II. Background: Copyright Law circa 1990
III. Cycles of Innovation and Resistance







DAT Recorders / AHRA
Encryption circumvention / DMCA §1201
Music Lockers / MP3.com litigation
Webcasting / DPRA-DMCA §114; CARP ruling
Centralized File Sharing / Napster-Scour litigation
P2P / P2P litigation; limited authorized services
CD Burning / CD copy protection
IV. Defects of the Resultant System
V. Where Do We Go from Here?
A. Private Property
B. Regulated Industry
C. An Alternative Compensation System
“No black flags with skull and crossbones, no
cutlasses, cannons, or daggers identify today’s pirates.
You can’t see them coming; there’s no warning shot
across your bow. Yet rest assured the pirates are out
there because today there is plenty of gold (and
platinum and diamonds) to be had. Today’s pirates
operate not on the high seas but on the Internet, in
illegal CD factories, distribution centers, and on the
street. The pirate’s credo is still the same--why pay
for it when it’s so easy to steal? The credo is as wrong
as it ever was. Stealing is still illegal, unethical, and
all too frequent in today’s digital age. That is why
RIAA continues to fight music piracy.” Website of
the Recording Industry Association of America
Private Property
 Theory:


Clarify and enforce the property rights of the
creators of music;
Rely upon Coasean bargains and the emergence
of private collective rights societies to
overcome transaction costs (Merges)
Features of Private Property
In Real Property
Copyrights
 Right to exclude
 Add full public-performance
right for sound recordings
 Eliminate compulsory licenses
 Lower “willful requirement and
increase enforcement of
criminal copyright
infringement
 CBDTPA
 Curtail DMCA and add Ploofstyle liability
 Injunctive Relief
 Criminal Trespass
 Prohibition of
burglary tools
 Privilege of self-help
tracks right to exclude
SSSCA; CBDTPA
 Security Systems Standards and Certification Act;
ConsumerBroadband and Digital Television
Promotion Act
 Would make it “unlawful to manufacture, import,
offer to the public, provide or otherwise traffic in
any interactive digital device that does not include
and utilize certified security technologies that
adhere to the security system standards”
 Private sector has 12 months to agree on a
standard
 If fail, standard selected by National Institute of
Standards and Technology
SSSCA; CBDTPA
 “The term ‘interactive digital device’ means any
machine, device, product, software, or technology,
whether or not included with or as part of some other
machine, device, product, software, or technology,
that is designed, marketed or used for the primary
purpose of, and that is capable of, storing, retrieving,
processing, performing, transmitting, receiving, or
copying information in digital form.”
 Would apply to PCs, hard drives, CD-Rom drives,
TVs, set-top boxes, CD players, MP3 players, video
game consoles, other digital appliances
Benefits:
 Media companies, confident in their ability to
make money in the new environment, would
accelerate Internet distribution

Associated socioeconomic advantages and cost savings
 Emergence of refined and flexible private
licensing societies (cf. ASCAP) would overcome
transaction-cost barriers to licensing (Merges)
 The price system would provide creators precise
signals concerning the tastes of consumers
(Goldstein)
 Enable musicians to break free of record
companies
Disadvantages
 Critical and transformative uses of
recordings would be curtailed, threatening
semiotic democracy
 Erosion of “end-to-end” principle
 Facilitate price discrimination – on balance,
pernicious in this context
Effects of Increased Price
Discrimination
Benefits
Harms
 Increased profits stimulate
inventive activity
 Reduced deadweight
losses
 Egalitarianism
(progressive redistribution
of wealth; broader access
to creative works)
 Reduction of costs
associated with cruder 2nddegree PD
 Increased “granularity” of
social life
 Invasions of privacy
 Threats to transformative
uses
 Radically increased profits
cause increased rentseeking within music and
film industries
Threats to “End-to-end”
 Proprietary control over the pipes

E.g., AT&T’s exercise of control over its cable
modem system
 Standardization and “dumbing down” of the
computers located on the ends
 Results:


Greater proprietary control over digital content
Curtailment of both competition and innovation
Outline
I. Potential Benefits of Internet Distribution
II. Background: Copyright in Music circa 1990
III. Cycles of Innovation and Resistance







DAT Recorders / AHRA
Encryption circumvention / DMCA §1201
Music Lockers / MP3.com litigation
Webcasting / DPRA-DMCA §114; CARP ruling
Centralized File Sharing / Napster-Scour litigation
P2P / P2P litigation; limited authorized services
CD Burning / CD copy protection
IV. Defects of the Resultant System
V. Where Do We Go from Here?
A. Private Property
B. Regulated Industry
C. An Alternative Compensation System
Regulated Industry
 Theory: Increased
governmental involvement
necessary to:



Respond to oligopolistic structure
of the industry
Calibrate more finely the balance
between incentives and public
access
Equalize bargaining power
between artists and record
companies
Reject the
“propertization”
of copyright;
Reinstate
the utilitarian
balance
Theory of
compulsory
terms
Regulated Industry
 Preserve and extend prohibitions on file-sharing
and encryption circumvention


Enforcement at ISP level
NET prosecutions of operators of SuperNodes
 Compulsory Royalty Systems for all forms of
Internet distribution of recorded music
(extend current §114(f)(2)(B) and AHRA)
 Mandatory (inalienable) distribution of revenues
between performers and producers
(extend current §114(g); cf. EC Directive)
Compulsory Royalties
Copyright Office at two-year intervals establish:
 Types of Internet distribution of recorded music





Nonsubscription noninteractive webcasting
Subscription noninteractive webcasting
Interactive webcasting
Ephemeral downloads
Permanent downloads
 Terms and conditions for each
 Royalty rates for each


For owners of copyrights in musical works
For owners of copyrights in sound recordings
boundaries
will shift as
consumption
technologies
change
Replace
ASCAP,
BMI,
SESAC
Likely Results
 Benefits:





Internet distribution of recorded music grows rapidly
Reverse vertical integration of the music industry
Diversity of services available to consumers increases
Net revenues of record industry stable
Composers and performers get larger shares of
revenues
 Drawbacks:



Transaction costs remain high
Copy-protections limit semiotic democracy
Surveillance and invasions of privacy
Outline
I. Potential Benefits of Internet Distribution
II. Background: Copyright Law circa 1990
III. Cycles of Innovation and Resistance







DAT Recorders / AHRA
Encryption circumvention / DMCA §1201
Music Lockers / MP3.com litigation
Webcasting / DPRA-DMCA §114; CARP ruling
Centralized File Sharing / Napster-Scour litigation
P2P / P2P litigation; limited authorized services
CD Burning / CD copy protection
IV. Defects of the Resultant System
V. Where Do We Go from Here?
A. Private Property
B. Regulated Industry
C. An Alternative Compensation System
Intellectual Products are “Public
Goods”
 Can be used and enjoyed by an infinite
number of persons without being “used up”
(nonrivalrous)
 It is difficult to prevent people from gaining
access to the good (nonexcludable)
Creates a danger that an inefficiently low
number of such goods will be produced
Possible Responses to Public-Goods
Problem
 Government provides the good

e.g., lighthouses; armed forces
 Government subsidizes production of the activity

e.g., basic scientific research; NEA
 Government issues prizes

cf. reward system for atomic-energy inventions
 Government confers monopoly power on producers

e.g., 19th c. toll roads; intellectual-property rights
 Government assists private parties in increasing
“excludability”

Trade-secret law; anti-circumvention laws
Alternative Compensation System




Register
Tax
Count
Pay
Registration
 Copyright owners register recordings with Copyright
Office

Only unencrypted recordings may be registered
 Unique ID numbers inserted into file name of publicly
available recordings

E.g., #4m8sp60wxi#
 Application designates:



any other registered digital recordings incorporated into the work
duration of the incorporated work
In the case of audio recordings, the owner of the copyright in the
composition
 Small registration fee to make the system self-financing
 Opposition Procedure
Taxation
Possible principles:
1) Provide creators the full social surplus of
their efforts
2) Fairness
3) Make creators, as a group, whole
4) Preserve a flourishing entertainment
culture
Figure 6.1: Revenues Streams Threatened by
Free Internet Distribution
Composer
Assignment of musical-works copyright
Publisher
Performance
license
Reproduction
license
Sheet Music
Printer
Harry Fox Agency
Import
license
BMI;
ASCAP;
SESAC
Recording
Artist
Blanket licenses
Radio
or TV
Station
Restaurant
Synchronization
license
Assignment
of sound-recording
copyright
Webcaster
payola
Performance
license
Mechanical
license
Sound
Exchange
Record
Importer
Movie
Studio
Record
Company
Movies
Director
Composer
Actors
“Location”
owners
Screenwriters
Record
Company
Novelist
“Work for Hire” agreements
Music
Publisher
Producer
Distribution agreement
Studio
Advertiser
Theatres
HBO, PPV, Airlines
Merchandise
manufacturer
Sales
Record
company
TV Networks
Video Stores
Cable
company
Taxation
Baseline year: 2000
Estimated revenues needed (year 1):
 Music Industry





Injury to record companies from diminished sales:
$1.05 billion
Injuries to music publishers from diminished record
sales: $132 million
Injuries to music publishers from reduced radio publicperformance fees: $58 million
No compensation for diminished webcasting license
fees
Music Industry total: $1.24 billion
Taxation
 Film Industry:




Impairment of studios’ income from domestic
home-video sales and rentals: $435 million
Impairment of cable and satellite licensing
revenues: $60 million
Impairment of pay-per-view revenues: $37
million
Film industry total: $532 million
 Total: $1.774 billion
Taxation
 Assuming that the agency devotes 20% of
its revenues to administrative costs, it would
need to collect in taxes during the first year:
$2.217 billion
 Adjusted (using Consumer Price Index plus
projected inflation rate to 2004): $2.418
billion
Count consumption
 Webcasters report playlists and number of
listeners
 Websites count number of downloads
 P2P systems report frequency of sharing
registration numbers
 Surveys estimate frequency of replaying stored
recordings
 Sales of prerecorded, non-copyprotected CDs
 Sampling and penalties to deter “ballot stuffing”
Payment
 Monies allocated among categories of copyright
owners, initially, in accordance with magnitude of
estimated injuries



Sound recordings: $1.05 billion
Musical compositions: $190 million
Motion pictures: $418 million
 Within each category, money distributed in
accordance with frequency of consumption
 Over time, the shares allocated to each genre
would shift in response to changing injuries and
costs
Lift Copyright System and
DMCA
 No liability for reproduction, distribution,
modification, adaptation, or performance of
audio or video recordings over the Internet
 No liability for circumventing encryption
protections
Merits
For consumers:
 Large cost savings
 Elimination of deadweight loss (music
priced at marginal cost of replication);
increased consumer surplus
 Convenience
 No price discrimination
 Cultural diversity and semiotic democracy
Cheaper Entertainment
Average American household currently spends
$100 on CDs and $350 on video recordings.
Total: $450
Broadband subscribers: for $42 per year in taxes,
get unlimited “free” music and movies
Dial-up modem users: for $180 in increased
subscription fees plus taxes, get unlimited
“free” music and movies
Households without Internet Access: no material
change in position
Merits
For artists:
 Incomes protected from corrosion
 Opportunity to offer products directly to
consumers

economic and cultural gains
Merits
For manufacturers of electronic equipment
and suppliers of electronic services:
 Increased taxes offset by increased value of
the products and services
Merits
For society at large:
 Decreased litigation
 Decreased costs of law enforcement
 Decreased encryption costs
Demerits
Who gets hurt?:
 Manufacturers
 Distributors
 Retailers
 Record Companies and Studios??
Demerits
 Distortions and Cross-subsidies


E.g., data CD sales
Underconsumption of ISP access
 Giving a government agency considerable
discretionary power

Risks of rent-seeking
Life Cycle of the System
 Launch:


Reform Berne Convention, Articles 9, 11, 12
No 5th amendment problem
 Growth


Increased usage results in increased taxes
Offset by:
• Growing tax base
• Increasing savings
 Expansion and technological change may
eventually lead to replacement with federal
income tax
Variations on the Theme




Global version
Comprehensive Domestic Version
NUL Domestic Version
Voluntary Version – entertainment co-op
Varieties of Materials
everything
Scale
global
music & film
multilateral treaty
national
music
P2P
all forms of Internet distribution
All uses
Entertainment Co-op
 Artists register with private co-op

Grant transferable non-exclusive license to download or
stream material
 Co-op licenses webcasters and download sites


Each accessible with a single subscription fee and
associated password
Licensees provides data concerning usage
 Revenues from subscription fees distributed in
accordance with revenue-sharing plan
 Consumer willingness to subscribe reinforced by
tightened penalties on P2P systems