THE BLOG

The Supreme Wisdom of Not Relying on the Court

05/25/2011 11:45 am ET
  • Hilary Rosen Communications, media and political strategist

The entertainment industry is anticipating -- as early as tomorrow -- a decision in the “MGM v Grokster” case. This is a case about whether or not those businesses creating and promoting P2P software for file-sharing are liable for the infringements of copyright made by the users on their networks.

This is a big case with lots of money poured into it from all sides. It is said that the Supreme Court’s decision will be one of the most important copyright cases ever on the books. I think it has all the makings of being famous for another reason. Because while the victory of whoever wins maybe important psychologically, it just won’t really matter in the marketplace.

I was Chairman and CEO of the RIAA when we developed the case almost five years ago. Suffice to say it was a frustrating time. Napster had been shut down rather than be licensed by the record companies and here were a whole group of new services that specifically avoided the legal frailties that Napster demonstrated in court. I thought that there was a need for a legal ruling at the time, but I also expected so much progress in the marketplace.

So why won’t this case matter now in the marketplace? Because by now SEVERAL HUNDRED MILLION copies of this software that the entertainment industry would like to vanquish have been downloaded to individual computers around the world. They go by names like Grokser, Morpheus, Limewire, eDonkey, Bit Torrent, Kazaa, etc.) And each time, there is a successful enforcement or a new way to catch the developers with copyright liability, they reinvent themselves and generate another two or three year court proceeding. And now, a majority of them are hosted outside the United States. There is no court ruling whose enforcement can keep up with this. Sure, it might affect some venture capitalist deciding where to put money for a product. But none of these services since Napster have required venture money. They grow organically, because they are serving a still unserved desire. Do people like free content, sure, but they also like content. All the stuff - when they want it - to feel like free even if it might not be free.

What about the consumer you say? Oh yeah, us. Well, what the consumer wants has been ignored far too often by both of these sides. The technology industry makes money from hardware and software innovation. They have seen that with enough “innovation” their consumers can get all the content they want for free without it really being the tech industry’s problem to worry about the investment required to make that content. And those that do try to find common ground and acknowledge that there can be good guys and bad guys in their business as well, get so quickly attacked by their own that they withdraw. And the entertainment industry is still far too often spending time comparing the profit margins and risk of new ideas to an earlier time when the world was less digital.

So here is the crux of the problem. These services have traffic at a rate 40 to 50 times the traffic of legitimate sites. Yet, the amount of time and money wasted on besting the game by the entertainment and techonolgy industries is huge. This volume needs to be embraced and managed becasue it cannot be vanquished. And a tone must be set that allows future innovation to stimulate negotiation and not just confrontation.

Sure iTunes is great but it doesn’t have enough songs at its music store. And when you find songs you want at other stores like Yahoo, Rhapsody, Napster and AOL, you can’t put them in your iPod without denigrating the sound quality and working around the system set up to prevent you from doing just such a thing. And none of these services have all of the live recordings and bootleg tracks that I have said, since the days of Napster, is one of the most appealing aspects of P2P services.

And don’t get me started on the movie business. I have met countless times, at their request, with the studio CEO’s to discuss ways to avoid the mistakes the music industry made. The studios have the potential to learn from past problems. Unlike the record industry which had relied almost solely on physical sales, the studios have been more sophisticated businesses that relied on multiple revenue streams for a long time. But, illegal movie downloading is growing so rapidly, and consumer alternatives are nowhere near on the front burner as they should be. The central premise that tech will "wait until we are ready with our business models" is not going to work for the movie and television indsutries either.

So what the consumer is left with now are a few legitimate services that offer some great content and lots more illegal P2P choices that offer ALL the content plus a healthy dose of spyware, bad files and unwanted risk.

These are not legal decisions or trade association PR responsibilities on either side. They are fundamentally business issues that must be addressed in the marketplace.

The entertainment industry has no choice right now but to speed up its licensing activity and risk-taking and the tech industry should start caring that they are not helping their customers when the easiest way to get entertainment content is to also accept spyware, viruses, and bad files in the process. Sure there are some promising things happening, but they are not being embraced nearly fast enough.

All the wisdom of the Supreme Court will not change that bottom line.
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*for those who haven't heard the basics - P2P services create a network of users who can connect directly to each other. Napster relied on a central server to distribute all the files therefore creating a record of each transaction. Therefore, the owners of these services like Grokster argue they have no control over what their users are doing. The copyright community argues that it is the copyrighted works that draw users to the P2P services and the services are creating a sham ignorance since they profit from the users on their network though the sale of advertising and use of spyware ad and they have demonstrated control over the years of their network through software updates, porn rules, etc. There are certainly more arguments on both sides than these and I won’t go into the details. If you are interested in the details go to MPAA.org, MUSICunited.org, and EFF.org.