Tag: Digital Economy Bill

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End User internet piracy Regs

The difficulties of licensing music for legal download

In the middle, as we are, of the birthing process of the Digital Economy Bill it is interesting to see how laborious this can be (and I have 4 kids!).

One of the gripes the ISP industry has (regular visitors to trefor.net will have become familiar with a few of them) is the fact that when it comes to copyright protection and the move to kill off illegal downloads there is too much stick and not enough carrot.

The big concern is that the Bill as proposed helps to compensate the music industry for losses incurred to an outdated business model and therefore removes the incentive for rights owners to embrace new business models.

ISPs are extremely frustrated by the difficulties in securing the licensing that is needed to offer consumers legal alternatives to illegal downloading. It has always been our view that a voluntary or legislative commitment to enforcement should only be introduced on the condition that rights-holders also commit to significant licensing reform.

Moreover there is a particular concern that some rights-holders are purposefully resisting reform of the licensing framework because they view legal models of online content distribution as a threat to their own existing revenue.

Lets take a look at some of the difficulties. These are some examples compiled by the Internet Services Provider Association as part of an as yet unpublished paper. There is some brain work involved here though I have tried to simplify it, largely so that I can understand the problems myself.

Existing problems
Taking a fully licensed music service to market is lengthy and onerous. Even if all the rights owners offered easy ways to access their catalogues, the complex contractual obligations wrapped around Intellectual Property rights in the reproduction, performance, and ‘making available’ of both musical works and sound recordings means that there is no guarantee of ending up with a fully licensed service.

Consumer expectations for online music are sky high. Given that many of them share a significant volume of unlawful music over P2P networks consumers are used to being able to download any track. Gaps in the available legal alternatives caused by licensing problems are not well looked upon and legal music services that attempt to offer incomplete catalogues are viewed as uncompetitive when compared with unlawful file-sharing.

Direct licensing or withholding
There are also additional obstacles to efficient music licensing which add cost and risk to the emerging digital entertainment industry.

Rather than using collective or wholesale clearing houses most music rights owning parties insist on licensing the use of their catalogues directly.

This means that direct licensing multiplies cost and difficulty for the licensee and allows each licensor the ability to set terms and rates that could critically damage the viability of a service. Licensors can also choose to withhold the catalogue required to offer a compelling customer proposition.

Ensuring that licensors negotiate through a collective or wholesale clearing house would assist licensees in securing the licenses that are required to offer a service that is attractive to consumers.

Territoriality
Rights-holders are currently able to limit the operations of music services to specific countries which enables them to introduce price discrimination from country to country. Also a single piece of music may well have different owners in different countries which adds cost and complexity to the initial rights negotiations and to the ongoing payment systems.

Advances
The larger rights owners usually demand advance payments and deal and delivery fees. These can be many times the expected royalty payments for the use of the music during the term of the agreement. This introduces a financing risk as well as adding a start-up cost to launching a new service. Often these will be staged as quarterly payments, with the threat of catalogue withdrawal or even insolvency proceedings should they not be met.

These advances are likely to be prohibitive to a provider launching a service. Advances also reduce transparency to other music stakeholders as they break the relationship between sales and royalty payments.

Short-term deals
Many deals have a one-year term with no obligation on the rights holder to renew. This will in almost all cases be considerably shorter than the planning horizon for a large operator and makes a business case more of an act of faith rather than a serious basis to roll out services. It also makes it difficult for a service provider to guarantee that it will be able to fulfil contracts with its own customers.

For example if half way through a one year contract with a consumer a service provider has a certain catalogue withdrawn from its own deal with the rights-holder then that SP is going to be unable to fulfil its own obligations. It could also turn a profitable service into a loss making entity completely outside the control of the service provider if the rights holder decides to jack up the cost.

Minima
Rights owners use contractual minimum payments in order to inflate their revenues over and above the value of the music that is actually sold by a service. In some cases this is relatively benign, such as setting a minimum wholesale price per track and taking the greater of that or a percentage of retail price.

It can, however, be used to set a price per subscriber that is higher than the licensor’s pro-rata revenue share or it can be set across an entire service so that the rights-holder receives a fixed percentage even when their pro-rata share drops. The effect of this is to compel the licensee to pay out over 100% of the royalty pool, eating into margins or operating costs.

Customer proposition approval
Rather than set wholesale pricing and allow operators to develop compelling services, music rights owners seek control over most aspects of the consumer offering and look to insert conditions in contracts that require any changes to be agreed in advance. This would seem to be an anti-competitive measure and detrimental to the creation of alternative models of distribution.

Arbitrary conditions
Rights holders can sometimes put pressure on music services to accept arbitrary conditions, such as using a preferred provider for some aspect of the service, or committing to a guaranteed placement for priority releases. Some other arbitrary conditions might include action against piracy either as a pre-condition of licensing or a commitment included in a contract. It might also include access to a large amount of consumer behaviour data including data that does not relate to the music included in the contract.

All this, and I’m sure the experts can probably dig out more examples, adds up to an extremely difficult environment for the creation of legal music download services.

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Business internet piracy Regs

Lady Gaga and the Digital Economy Bill goo goo.

The Digital Economy Bill will have its third reading in the Lords next week. Thus far each clause has been debated at each reading. It isn’t possible to forecast when it will finish in the Lords – a Bill can have up to 8 readings.

So we don’t have a proper handle on the schedule yet. What is highly likely is that it will be rushed through the Commons with a firm Government Whip. Under normal conditions this would be expected to be a shoe in but it will be interesting to see how many of Labour MPs leaving the House after this election break ranks.

At yesterday’s ISPA Legal Forum the subject of copyright law and the Digital Economy Bill was discussed. The Music Industry claims that legal methods of downloading music are being promoted. It is worth noting that at the event music site 7digital stated that in order to be able to sell some music online (eg Lady Gaga was quoted) they had to negotiate 40 different licensing contracts. Talk about getting bogged down in the goo. This is not consistent with “making it easier”.

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Business internet ofcom piracy

Bono sums don’t add up.

The BBC reports today that singer Bono is claiming that the revenues lost by the music industry due to illegal downloading mirrors the growth in profits of the Internet industry.

This didn’t sound quite right to me but I doubt that anyone has any real data. It did prompt me to see if I could have a stab at sizing both industries myself from my limited sources of information.

Firstly in last year’s Ofcom communications market report the total number of ADSL tails is quoted as being 17.3 million connections at an average cost of £10.71 a month.  This works out at just over £2.2Bn revenues in 2008.  I realise that there will be other revenues that add to the total ISP take but ADSL will be the biggest portion of the whole. Also I have no doubt that the music industry would quote the total communications market size as the number to compare.

Now look at the available data on the music industry in the UK posted recently in the Times which suggests that turnover in 2008 was, wait for it, just over £2.2Bn.

Whatever the right numbers it clearly suggests that Bono’s claim is just the hype that most people will hopefully see through, or at least MPS about to decide on the Digital Economy Bill.  We are at an important juncture in process of the DEB and it is important that the ISP industry gets its own message across as clearly and successfully as the music industry seems to be doing.  I haven’t been monitoring the relative amounts of press coverage each side has been getting.

ofcom1Finally the chart, taken from last year’s Ofcom market report shows how the media and telecoms industries have been performing relative to the stock market. It suggests to me that the media industry, again assuming the metric is the right one, is not doing so badly, relatively speaking.

I’m quite happy to be corrected with any of the numbers here but we do need to try and get a correct persective on the whole situation.

Categories
Business internet ofcom piracy

Bono sums don't add up.

The BBC reports today that singer Bono is claiming that the revenues lost by the music industry due to illegal downloading mirrors the growth in profits of the Internet industry.

This didn’t sound quite right to me but I doubt that anyone has any real data. It did prompt me to see if I could have a stab at sizing both industries myself from my limited sources of information.

Firstly in last year’s Ofcom communications market report the total number of ADSL tails is quoted as being 17.3 million connections at an average cost of £10.71 a month.  This works out at just over £2.2Bn revenues in 2008.  I realise that there will be other revenues that add to the total ISP take but ADSL will be the biggest portion of the whole. Also I have no doubt that the music industry would quote the total communications market size as the number to compare.

Now look at the available data on the music industry in the UK posted recently in the Times which suggests that turnover in 2008 was, wait for it, just over £2.2Bn.

Whatever the right numbers it clearly suggests that Bono’s claim is just the hype that most people will hopefully see through, or at least MPS about to decide on the Digital Economy Bill.  We are at an important juncture in process of the DEB and it is important that the ISP industry gets its own message across as clearly and successfully as the music industry seems to be doing.  I haven’t been monitoring the relative amounts of press coverage each side has been getting.

ofcom1Finally the chart, taken from last year’s Ofcom market report shows how the media and telecoms industries have been performing relative to the stock market. It suggests to me that the media industry, again assuming the metric is the right one, is not doing so badly, relatively speaking.

I’m quite happy to be corrected with any of the numbers here but we do need to try and get a correct persective on the whole situation.

Categories
Business piracy Regs

Canadian Recording Industry sued for $6Bn in musician class-action lawsuit for copyright infringement

In Canada the recording industry has allegedly been witholding payments to musicians for use of copyrighted material and is the subject of a class action (BakerSOC ) that could cost them up to $6Bn.

The problem goes back decades and appears to be the result of a longstanding practice of the recording industry in Canada, described in the lawsuit as “exploit now, pay later if at all.”

It involves the use of works that are often included in compilation CDs (ie. the top dance tracks of 2009) or live recordings. The record labels create, press, distribute, and sell the CDs, but do not obtain the necessary copyright licences.

The defendants in the case are Warner Music Canada, Sony BMG Music Canada, EMI Music Canada, and Universal Music Canada, the four primary members of the Canadian Recording Industry Association.

The CRIA members were hit with the lawsuit in October 2008, after artists decided to turn to the courts following decades of frustration with the rampant infringement.

It would be interesting to see if the same practice was going on in the UK. If it was it would make a mockery of the attempts of the Music Industry here to drive through the Digital Economy Bill which seeks to cut off the internet connections of people involved in copyright infringement (or “illegal music downloading”).

There’s a lot more detail on the Canadian case in Michael Geist’s blog here.

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Business piracy Regs

Digital Economy Bill Second Reading

The Second Reading of the Digital Economy Bill was held yesterday in the House of Lords. All sections of the Bill were considered, although the main focus was on clauses 4-17 that address copyright infringement. A brief summary is provided below:

  • Lord Mandelson presented the Bill, outlining the two initial obligations on ISPs and explaining the rationale behind the reserve power to impose technical sanctions. He described the clauses as proportionate. Former Cabinet Minister Lord Fowler, responding on behalf of the Conservatives, described the step-by-step process outlined in the Bill as ‘correct’, subject to RHs taking action to make their products legally accessible.
  • On behalf of the Lib Dems, Lord Razzall welcomed the Bill. He did, however, cite a number of sections that the Lib Dems were unhappy with. He requested that clause 6.5(b), which provides for retrospective penalties, be removed. He also questioned the lack of details on the apportioning of costs and the inclusion of clause 17.  He further underlined the need to honour the principles of natural justice.
  • Support for the Bill was voiced by Lord Birt, Lord Puttnam, Baroness Morris (all of whom declared rightsholder interests in this area) and Baroness Howe.
  • Baroness Miller voiced strong opposition to a number of clauses in the Bill. She suggested that the Bill would protect the old model of content distribution rather than encourage new models. She also criticised the decision to make one industry pay for the protection of another and questioned clause 15, which outlines the role of the Secretary of State in defining the level of cost recovery. The Baroness further asked the Government about the effect that increased encryption, which the Bill could cause, would have on the work of law enforcement and cited the threat that the Bill posed to open wif-fi connections.
  • Conservative peer Lord Lucas voiced a number of strong arguments against the Bill. He first questioned the motivation for legislation, explaining that this was protecting music companies rather than artists, and lamented the inability of music companies to offer legal alternatives. He also suggested that it should be compulsory for rightsholders to pursue legal action through the notification system, called for due process for consumers and requested that the Conservative front bench vote against clause 17.
  • Lord Whitty also outlined his opposition to the proposals, questioning the suggested cost to the rightsholder industry, the potential of the user to breach users’ human rights and the lack of focus on education and alternative models of content distribution.
  • Lib Dem Culture Media and Sport Spokesperson Lord Clement-Jones expressed concerns around the power that the Bill granted to the Secretary of State. Conservative Shadow Culture Media and Sport Minister Lord Howard agreed that there would have to be close scrutiny of clause 11 to understand the power being given to the Secretary of State.

At this stage of the game it is difficult to tell how this Digital Economy Bill will pan out because it seems to be getting some degree of qualifed support from all parties at the Second Reading stage.

The debate in full is available here. I understand that the Committee Stage of the Bill will begin on January 6th.  Also I am indebted to the ISPA Secretariat for this input which is mostly a plagiarism of their report.  It is a full time job keeping an eye on this stuff.

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Business piracy

Timesonline market research shows music artists revenues on the up.

Timesonline Labs blog published some interesting market research in November suggesting that revenues that musicians receive from non record label sources is on the rise.  The increases seem to more than compensate for the decrease in their incomes from record label contracts.

Record label revenues though are shown to be hugely in decline which says a lot about why they are making such a fuss over Music Piracy. I don’t think anyone should criticise the labels for their efforts.  However in considering the Digital Economy Bill Government should take a 60,000 foot view and recognise that business models are changing and the old record label way might well have to change with the times.

Bob Dylan foresaw this in “The Times They Are A Changing” -you better start swimming or you’ll sink like a stone, for the times they are a-changing.  I think the labels are just swimming in the wrong direction.

Link to the Timesonline article here.

Thanks to boggits for the link.

Categories
Business internet piracy Regs

P2P regulation in Digital Economy Bill ain’t going to work

Now that the Digital Economy Bill has been published we can comment on its specifics. and in particular on the aspects relating to what the Government describes as “Online infringement of copyright” or illegal filesharing/Music Piracy in every day language.  It doesn’t just pertain to music, it includes movies and software as well – many of the abuse notices received by Timico in respect of naughty customers are concerned with the latter.

First of all the proposed Bill grants Lord Mandelson far too much control.  The Secretary of State will have the power to make specific recommendations on costs and impose an obligations on ISPs to use technical sanctions. The uninitiated should read this as “telling ISPs how much they will be allowed to charge rights holders for the implementation of the requirements of the Bill.  Technical sanctions = cutting off broadband connections.

In the first instance the industry thinks these responsibilites should be given to an independant body.  Also the idea that ISPs should share some of the cost burden is contrary to the Government’s own legislation – the Regulation of Investigatory Powers Act (2000) (RIPA) – which considers it appropriate for ISPs to be reimbursed for costs incurred when assisting in serious criminal investigations,  such as terrorism or kidnap.

What the Government is saying here that it believes that it is ok to recover costs for assistance with the pursuit of serious criminals but not for costs incurred pursuing an alleged civil infringement on behalf of a commercial interest. A scenario that normally burdens the party with the commercial interest with the cost.

ISPs are happy to help and indeed are not in favour of copyright infringement but think it is grossly unfair that they have to pay to police it.

Secondly the suspension of users’ accounts as a potential sanction is wholly disproportionate and is in direct opposition to the objectives outlined in Digital Britain to increase online participation. It seems that this will enable the suspension of users’ accounts without a ruling from a judge. This is potentially in defiance of the forthcoming EU Telecoms Package that guarantees users’ rights to a presumption of innocence until proved guilty.

The Government seems to be blind to the fact that serious copyright infringers can easily evade detection by employing encrypted P2P (for example).

Instead of wielding a big stick Government should be asking rightsholders to reform the licensing framework so that legal content can be distributed online to consumers in a way that they are clearly demanding. Currently the online copyright law is a mess spread across many countries and legislatures and the costs to industry of getting it sorted are huge. 

The Government is trying to push this Bill through quickly but it isn’t going to stop the problem. Lift up your heads and raise your voices all!

Categories
Business internet piracy Regs

P2P regulation in Digital Economy Bill ain't going to work

Now that the Digital Economy Bill has been published we can comment on its specifics. and in particular on the aspects relating to what the Government describes as “Online infringement of copyright” or illegal filesharing/Music Piracy in every day language.  It doesn’t just pertain to music, it includes movies and software as well – many of the abuse notices received by Timico in respect of naughty customers are concerned with the latter.

First of all the proposed Bill grants Lord Mandelson far too much control.  The Secretary of State will have the power to make specific recommendations on costs and impose an obligations on ISPs to use technical sanctions. The uninitiated should read this as “telling ISPs how much they will be allowed to charge rights holders for the implementation of the requirements of the Bill.  Technical sanctions = cutting off broadband connections.

In the first instance the industry thinks these responsibilites should be given to an independant body.  Also the idea that ISPs should share some of the cost burden is contrary to the Government’s own legislation – the Regulation of Investigatory Powers Act (2000) (RIPA) – which considers it appropriate for ISPs to be reimbursed for costs incurred when assisting in serious criminal investigations,  such as terrorism or kidnap.

What the Government is saying here that it believes that it is ok to recover costs for assistance with the pursuit of serious criminals but not for costs incurred pursuing an alleged civil infringement on behalf of a commercial interest. A scenario that normally burdens the party with the commercial interest with the cost.

ISPs are happy to help and indeed are not in favour of copyright infringement but think it is grossly unfair that they have to pay to police it.

Secondly the suspension of users’ accounts as a potential sanction is wholly disproportionate and is in direct opposition to the objectives outlined in Digital Britain to increase online participation. It seems that this will enable the suspension of users’ accounts without a ruling from a judge. This is potentially in defiance of the forthcoming EU Telecoms Package that guarantees users’ rights to a presumption of innocence until proved guilty.

The Government seems to be blind to the fact that serious copyright infringers can easily evade detection by employing encrypted P2P (for example).

Instead of wielding a big stick Government should be asking rightsholders to reform the licensing framework so that legal content can be distributed online to consumers in a way that they are clearly demanding. Currently the online copyright law is a mess spread across many countries and legislatures and the costs to industry of getting it sorted are huge. 

The Government is trying to push this Bill through quickly but it isn’t going to stop the problem. Lift up your heads and raise your voices all!

Categories
broadband Business internet piracy

Digital Economy Bill is a Lesson in Politics

It’s out, after the first reading in the Lords yesterday!  The Digital Britain bill that is, now known as the Digital Economy Bill.

After months of debate, lobbying and speculation the proposed detail has been published and at first sight it appears to have bits missing. Of interest to ISPs is that there is a lot of content pertaining to Copyright of online digital content – ie illegal P2P filesharing but nothing regarding the Universal Service Obligation for broadband.

There is clearly some political manouvering going on here.  The 50pence tax is already supposedly going to be in the Finance Bill.  Word is that the Government doesn’t think that the USO specifically needs to be in any legislation as it will either be covered by the Finance Bill or the money is already there from the Digital Surplus – the fund set aside to help with Digital TV switchover.

By doing this the Government is trying to increase the likelihood of some of  the Digital Britain Review becoming law by splitting it up into smaller bits. It is also quite possibly using this to brush under the table that they are going to struggle with the implementation of an USO.  They just can’t get their brains round the problem. It is very unfortunate for the millions of Digitally Excluded unfortunates around the UK in suburbs and rural communities alike.  I might be wrong about this but I don’t think so.

Also of interest are proposed powers that will allow the Goverment to take over management of Domain Name Registry Nominet if it doesn’t like how it is being run. Nominet has seen some board room action this year with a couple of Directors making a lot of noise over governance.   The issue is fairly compicated but I believe that one of the issues was the amount of surplus cash being generated by the not for profit organisation.

Details of the Bill can be found here.  Separate post on copyright comes next.