Mark Cuban is displeased with the record industry's stance on P2P. He suggests they move to a business model along the lines of making catalogs of music available for downloads through cyberplaces like AOL and other ISPs; and believe the industry to be using P2P as a scapegoat for its own marketing failings.

This refrain is not uncommon. Its implication is that the problem of P2P and digital copying more broadly is what I would call a shallow problem—that is, a problem that is in a sense illusory and does not require any systemic legal or policy-level fix. It is enough—as usual with challenges that technology poses for existing business models—to experiment with a few new ways of doing things until one finds one that works.

In the vast majority of "problems" that tech is alleged to face, leaving things alone is a good place to start. But I have trouble with the idea when it comes to digital copies.

To begin with, there is the theory that music executives are just running their business badly. What, all of them? Why would a fairly competitive, well-funded industry become systematically a haven for incompetents? Surely some visionary would have stepped forward by now to lead the industry forward if indeed it is as simple as just selling things cheaper and easier. Furthermore the "P2P is just a scapegoat theory" must postulate that the entire content industry is incompetent—not just music producers, but also movie and game producers, many software producers, designers of needlework patterns, and so on. It just seems unlikely. This should be a red flag that the digital copyright challenge is not just someone's personality problem—something more systemic is going on.

Here's a candidate for the systemic issue: How exactly is the market to reconstitute itself around a new business model, when most of the devices that markets use to package their product (contract, technology, statute) have become unstable—very difficult if not impossible to enforce? This question seems to call for some deeper thinking on the question of how exactly the market will be remade.

Has Mark Cuban come up with a solution? His idea for a new business model is at least more concrete than most who rail against the music industry's business model. Perhaps someone will try it—it's similar to what Apple is doing with iPod. It does not, however, resolve the challenge of P2P.

Again, the trouble with digital copies is not just a problem for music—ultimately, with the spread of broadband, it is a problem for movies, books, and games, photographs and knitting patterns. While production of a single song may be cheap enough to maintain supply in the long run with a pay-low-price per download model or a pay-low-price to get entire catalog model, that certainly isn't true of games and movies. Entertainment industry economics (music, games, movies) have proven tricky in the past—money lost on flops (many) must be made up on hits (few, unpredictable); this may explain the music industries' fierce attachment to bundles of its product in the form of the album. Bundling is one way around the hits/flops problem--digital copying allows easy unbundling. In any case, the hits/flops problem adds an element of risk to the business of selling content that many "new business model" proposals simply do not take account of.

Having to compete with free downloads adds another. The issue of P2P is not so much its impact on CD sales, but the risk it adds to a major launch of new services such as those Cuban has described. It is possible that ultimately for-pay services will offer consumers better service and they can prevail in the market that way. But this seems to be true only so long as P2P service remains a bit seedy in terms of what one is likely to encounter in the downloading process. And it is quite possible that P2P can and will clean itself up—for example, they are working on a system to help discourage use of P2P to distribute child porn. The question remains, how is any new business model to compete with "free?"

This, in a nutshell, is why the problem of digital copies is a deep problem, a problem requiring a systemic fix. I am optimistic that this can be managed without doing anything drastic. But it will take some serious thought.

posted by Solveig Singleton @ 4:22 PM | Internet: P2P, Search Engines..., Prices, Terms, and Licensing

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