Returning to the theme of property rights and technological change: The next crisis for the IP system concerns digital and satellite radio broadcasting.

For radio, Congress created a property rights regime based on technological realities: broadcasting is ephemeral. If people want to capture the music permanently, they must acquire it elsewhere. So broadcasters pay minuscule royalties on the theory that people will hear music, like it, and buy it, so the artists will be compensated indirectly. The development of tape threatened this system, but it was not sufficiently high fidelity to substitute for purchase.

It is not a totally bad theory, even if it probably short-changes the creators somewhat, and even if uncompelled bargaining would have achieved a better result.

But new technologies are rendering the theory obsolete. Digital radios can seek out music, record it almost perfectly, and substitute for both CDs and licensed download services.

Well, this isn't going to work, unless we want to go to an EFF-inspired system of government controlled art. (And I can't wait to see the request for a subsidy for Blood Duster - "Melbourne's favourite conscienceless perveyors of mental grind porn.")

So the IP regime must change. There must either be a whopping increase in the royalties charged for broadcasting music, or there must be be a limit (legal and/or technical) on the capacity of the new technologies reproduce it without charge. The latter is preferable, because it creates a market that coordinates supply and demand and lets consumers express their preferences.

At a hearing yesterday, Mitch Bainwol of the RIAA set out the music industry's case. The punchline:

The law as it now stands was written for a traditional radio service – that is, a service that broadcasts music for passive listening, not as a download service. Payment under the law is very different for a broadcast as opposed to a download. Radio services are entitled to a statutory license, if a license is even required. Download services, however, must be licensed in the marketplace. When a radio service adds features to effectively become a download service, it should not be allowed to merely use the radio license without paying the same marketplace price that download services pay. It is unfair to the legitimate distribution services and retailers, and it is unfair to the copyright owners who deserve fair compensation.

Also:

What we are talking about here is not casual recording by listeners. We are talking about technologies that allow broadcast programs to be automatically captured and then disaggregated, song-by-song, into a massive library of music, neatly filed in a digital jukebox and organized by artist, song title, genre and any other classification imaginable. Listeners will be able to build entire collections of content without the need to ever purchase any of it; indeed, they won’t even have to listen to it. This is not fair use. It is not time-shifting. The resulting harm from loss of sales threatens to rival or even surpass that of peer-to-peer (“P2P”) file-sharing, which has already devastated the music and other content industries. Unlike P2P, digital radio downloads will offer pristine copies of songs without the threat of viruses and spyware. The ubiquity and ease of use of radios outstrips that of computers, and the one-way method of communication allows individuals to boldly engage in piracy with little fear of detection.

The recent Supreme Court ruling in the Grokster case recognized the liability of companies that encourage and induce online piracy, and offers the promise of a brighter future for creators of music and fans. We can’t allow that future to be dampened by new business models that cannibalize the creative content they depend on. We are absolutely fine with any and all new radio features that give consumers more flexibility – but like their competitors in the download and subscription space, they need to be licensed in the marketplace. The record companies have shown a great willingness over the past few years to license new and creative services to bring more choices to consumers. We look forward to evaluating new business models that expand the capabilities of radio broadcasts. But it needs to be done in the marketplace at fair rates.

posted by James DeLong @ 1:11 PM | Radio

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