Special Report: The Future Of File Sharing

Digital content owners continue to emphasise enforcement and protection of intellectual property. However, the impact that litigation and legislation have had with the purpose of limiting illegal file sharing remains questionable, thus setting the stage for new economic models and approaches that could serve as a remedy.

Recent aggressive attempts by a government to limit file sharing include France’s HADOPI law, which is heavily criticised for being unenforceable and could possibly violate constitutional protections. The Recording Industry Association of America (RIAA) and affiliates’ litigation campaign in the United States, which has gone on for five years and led to over 30,000 lawsuits, has hardly deterred illegal file sharing. Despite other initiatives around the world in addition to actions taken in France and in the United States, artists or music companies are paid for only about 5 percent of all music files that are downloaded worldwide, according to the International Federation of the Phonographic Industry (IFPI). Content owners of video, games, and other digitised media also share the same plight.

In many respects, the RIAA’s litigation campaign and other more aggressive copyright protection and enforcement measures may turn out to be just a blip in new media’s history. Instead, new distribution models are likely to emerge that appease both content owners and consumers while replacing established commercial channels, such as CDs and even more modernistic online music sales.

Indeed, while the IFPI and the RIAA, for example, still maintain rigorous enforcement policies on behalf of their affiliates, these associations also now back alternative business models for digital content distribution.

“There is this sort of idea, on one hand, that copyright enforcement and the development of new business models are in opposition to each other. But they have been replaced by an assumption that they go hand in hand,” said Adrian Strain, a spokesman for the IFPI London. “There is enforcing the law, and on the other hand, there is the development of very interesting and proper digital services to consumers.”

But what alternatives exist that can appease those with royalty interests as well as meet the demand of consumers, especially those who actively engage in sharing copyright-protected media files? We look at some future models file sharing could take during the coming years.

Free Music with Paid Ads

The idea of unfettered access to music and video files free of charge may seem to fly in the face of industry copyright-protection and enforcement philosophies. Yet, the IFPI/RIAA has begun to embrace music streaming sites such as Deezer and Spotify that use ad revenues to pay royalties when songs are accessed.

However, while ad-revenue generating platforms that offer free content are something to consider, the commercial viability of these streaming sites remains uncertain.

“The industry will have to take into account the proliferation of interactive platforms and the common goods that are emerging from them, which should rather lead to a share of ads revenues rather than a strict application of DMCA [the US Digital Millennium Copyright Act], which is sometimes far too strict,” said Philippe Gillieron, an attorney with Switzerland-based Bianchi, Carnice, Christin, and de Coulon. “The future of all these systems will obviously also depend upon the way service providers can monetise this interactivity, an issue that largely remains unsolved so far except for ads revenues, whose sustainable growth, however, remains dubious in the long run in my opinion.”

Just as newspapers struggle to compensate for losses from their print operations with online advertising sales, websites may also struggle to make money with advertising while paying royalty fees for music and other content accessed by users free of charge.

“If this kind of offer becomes more and more popular, conversely, the number of people buying music will diminish,” said Nicolas Maubert, an attorney in the IP, Telecommunications, Media, and Technology department for the Paris-based law firm Gide Loyrette Nouel, referring to Deezer. “This means that all the majors (who have signed deals with Deezer) will very likely want to renegotiate these deals and increase the price to be paid by Deezer, meaning that Deezer in turn will need to find additional sources of revenues.”

In Asia, and particularly in China where hundred of millions of users take advantage of unfettered file sharing and unlicensed streaming sites with little, if any, risk of legal consequences, major media companies have begun to accept free downloads by consumers in exchange for advertising revenues. EMI, the Warner Music Group and Universal Music, for example, formed an alliance earlier this year with Google for free music file downloads for users in China. The move was largely seen as example of record companies throwing up their hands in a region where copyright enforcement laws in China are largely inexistent compared to Western countries.

Still, the future of file sharing China as well as in Japan remains murky, although a new legal framework could still emerge in these regions, said Joichi Ito, CEO of Creative Commons, who said that his comments did not necessarily reflect those of his firm.

“I think the legal roadmap for both China and Japan are unpredictable and thus I’d hate to predict them,” Ito said. “However, they are evolving and I hope and almost predict that some sort of compulsory licenses scheme gets implemented at some point.”

The End of Open PC Systems

The personal computer (PC) serves as the box from which files are exchanged, while the internet serves as the pipes through which digitised copies of content are distributed. Both were designed to facilitate the free exchange of files between users. These open systems are also the main technology enablers allowing users to exchange millions of files that violate copyright protections on any given day. Content providers have sought to use digital rights management (DRM) software to block users from making digital copies in the past, yet easy-to-install DRM-cracking software and consumer backlash have largely served to end its adoption. But now, the wide-scale adoption of new original equipment manufacturers (OEM) devices, such as video consoles, video players, set-top boxes, and smart phones, make file sharing more difficult due to their closed architectures, unlike the more open PC platforms.

A video game cartridge for game consoles, for example, is difficult to copy and distribute over the internet compared to the file format of PC versions of the same game. In the case of emerging multimedia products for the PlayStation, the Wii, and the Xbox, such as “Rock Band” and “Guitar Hero,” the content remains largely locked while several royalty streams exist, including money paid for use of copyright-protected songs as well as to the game developers. Other new similar locked-down products should also emerge for digitised content. If consumer demand shifts away from open-system PCs to more closed systems, then illegal distribution of media content would thus likely be significantly hampered.

“On a standard PC, a workaround to DRM has traditionally been a mere double-click away,” said Jonathan Zittrain, a professor at Harvard Law School and co-founder of the Berkman Center for Internet and Society. “That’s harder with, say, an iPhone, since the vendor gets to control what will and won’t run on the phone, short of some much more labour-intensive hacking.”

Still, some legal experts and representatives from digital rights consumer groups still doubt that closed OEM systems will completely replace open systems in the future, even if locked-down devices replace the PC model as the main consumer computer.

“Closed systems proliferate because they offer experiences that cannot be found elsewhere (iPod mobility, Xbox Live, etc.), but consumers are not giving up open platforms. If anything, consumers are increasingly comfortable with owning multiple networked devices for multiple activities,” said Fred von Lohmann, a staff attorney for the Electronic Frontier Foundation (EFF). “File sharing capabilities are also increasingly being baked into inexpensive stand-alone devices, such as network-attached storage drives, so consumers no longer need to rely on PCs for file sharing.”

Some observers maintain that even if closed hardware systems were to successfully end the issue of lost royalty payments due to massive file sharing, the adoption of hardware equivalents of DRM software could prove harmful for consumers in the long run, while carrying inherent risks.

“[Locked-down hardware] is designed to treat their owners as attackers, and to carry out policy that is adverse to their owners, at the behest of remote parties, without the owner’s consent and sometimes without their knowledge. This is a bad way to design systems from a security perspective,” said Cory Doctorow, a successful science fiction writer, net activist, and editor of blog boingboing.net.

“It means that our world is slowly filling up with devices, which if hijacked – either by a media company with dumb ideas about its business model, or by a would-be monopolist seeking lock-in, or by criminals seeking to abuse and rob a user – are designed to give the hijacker the advantage over the user,” he said.

Global Licences

Some policy decision makers around the world have begun to advocate a system that would enable consumers to pay a fee, possibly to service providers that would pay for unlimited file downloading of content.

William Fisher of Harvard Law School and others in mostly academic circles a few years ago touted the idea. Patrick Bloche, the national media secretary for France’s Socialist Party and the mayor of Paris’ 11th arrondissement, is among the backers of a common licence. Such a model, under which consumers would pay a monthly fee for unfettered media-file sharing, would also pay the artists more handsome royalties compared to how they are now compensated, Bloche said.

“The new [HADOPI] law will not pay most artists a single euro more,” Bloche said. “A ‘creative fee’ paid could generated 400 million euros per year for artists and content developers.”

One potential drawback involved in paying a common licence fee is that it could be difficult to administer, attorney Gillieron said. “The problem for most people is that such a system turns what should be a remuneration (which should bear some relation with the actual consumption of the work) to a mere tax system,” Gillieron said.

But in the long run, whether content royalties are paid for with a monthly fee or through ad revenues, content owners will eventually “benefit from abundance rather than scarcity,” Harvard law professor Zittrain said.

“With better internet connectivity, more and more people will be persuaded to enjoy their entertainment ‘just in time,’ streamed at the moment they want it, as part of an environment – a social network or a virtual world – where there are more opportunities for control and gate keeping,” Zittrain said. “The idea of obsessing over who holds a ‘gold’ copy of a song (namely, everyone who possesses a CD of it or a file ripped in good quality from the CD) will seem antediluvian.”