Guest post by Chris Castle (from MusicTech.Solutions)
I know it’s not very “modern,” but music piracy is still a huge problem. As recently as yesterday I had a digital music service executive tell me that they’d never raise prices because the alternative was zero–meaning stolen. (This demonstrates the downward effect on prices from massive piracy that David has noted many times on the Trichordist.)
Very 1999, but also oh so very modern as long as Google and their ilk cling bitterly to their legacy “safe harbors” that act like the compulsory licenses they love so much. Except the safe harbor “license” is largely both royalty free and unlawful. Based on recent data, it appears that streaming is not saving us from piracy after all if 12 years after Google’s acquisition of YouTube piracy still accounts for over one third of music “consumption.” The recent victory over Google in the European Parliament indicates that it may yet be possible to change the behavior of Big Tech in a post-Cambridge Analytica world.
It’s still fair to say that piracy is the single biggest factor in the downward and sideways pressure on music prices ever since artists and record companies ceded control over retail pricing to people who have virtually no commercial incentive to pay a fair price for the music they view as a loss leader. The current thinking seems to be that streaming will save us by having more users subscribe to music services at a price that reflects the market distortion of massive piracy. In other words, less is more–the revenge of Chris Anderson. Except now we are to treat the head of the tail as though it were the long tail.
On the other hand, if the Googles of this world were living up to their ethical responsibilities that should be the quid pro quo for the profits they make compared to the harms they socialize, then you wouldn’t see numbers like this chart from Statistica derived from IFPI numbers:
The good news is that there is a solution available–or if not a solution then at least a more pronounced trend–toward making piracy much harder to accomplish. It may be necessary to take some definitive steps toward encouraging companies like Google, Facebook, Twitch, Amazon, Vimeo and Twitter to do more to impede and interdict mass piracy in return for the safe harbor they love so much and misuse every day.
Private Contracts: It may be possible to accomplish some of these steps through conditions in private contracts that include sufficient downside for tech companies to do the right thing. That downside probably should include money, but everyone needs to understand that money is never enough because the money forfeitures are never enough.
The downside also needs to affect behavior. Getting Google to change its ways is a tall order. Witness Google’s failure to comply with their nonprosecution agreement with the Criminal Division of the Department of Justice for violations of the Controlled Substances Act. When the United States failed to enforce the NPA against Google, Mississippi Attorney General Jim Hood sought to enforce Mississippi’s own consumer protection statutes against Google for harms deriving from that breach. Google sued Hoodand he ended up having to fold his case, even though 40 state attorneys general backed him.
Antitrust Actions: Just like Standard Oil, the big tech companies are on the path to government break ups as Professor Jonathan Taplin teaches us. What would have been unthinkable a few years ago due to fake grooviness, the revolving door and massive lobbying spending all over the planet, in a post-Cambridge Analytica and Open Media world, governments are far, far more willing to go after companies like Google, Amazon and Facebook. At least in Europe where fines against Google for competition law violations exceed $5 billion.
Racketeer Influenced and Corrupt Organizations Act Civil Prosecutions: “Civil RICO” claims are another way of forcing Google, Facebook, Amazon & Co. to behave. Google is fighting a civil RICO action in California state court. Civil RICO may be a fertile solution against one or more of Google, Facebook and Amazon.
As we know, streaming royalties typically decline over time due to the fact that the revenues to be divided do not typically increase substantially (and probably because of recoupable and nonrecoupable payments to those with leverage). At any rate, the increase in payable revenues is less than the increase in the number of streams (and recordings).
While it’s always risky to think you have the answer, one part of the answer has to be basic property rights concepts and commercial business reality–if you can’t reduce piracy to a market clearing rate, you’ll never be able to increase revenue and music will always be a loss leader for immensely profitable higher priced goods that artists, songwriters, labels and publishers don’t share be it hardware, advertising or pipes.
I strongly recommend Hernando de Soto’s Mystery of Capital for everyone interested in this problem. The following from the dust jacket could just as easily be said of Google’s Internet:
Every developed nation in the world at one time went through the transformation from predominantly extralegal property arrangements, such as squatting on large estates, to a formal, unified legal property system. In the West we’ve forgotten that creating this system is what allowed people everywhere to leverage property into wealth.
What we have to do is encourage tech companies to stop looking for safe harbors and start using their know-how to encourage the transformation of the extralegal property arrangements they squat on and instead accept a fair rate of return. My bet is that this is far more likely to happen in Europe–within 30 days of each other we’ve seen Europe embrace safe harbor reform in the Copyright Directive while the United States welcomed yet another safe harbor.
If we’re lucky, the European solution in the Copyright Directive may be exported from the Old World to the New. And if Hernando de Soto could bring property rights reform to Peru in the face of entrenched extralegal methods and the FARC using distinctly American approaches to capital, surely America can do the same even with existing laws and Google.
The Trichordist 
In 2014, I gave a series of presentations predicting that once streaming hit 200 million subscribers (freemium + paid), we would see a spike in piracy. This was counterintuitive to the narrative being presented at the time by Spotify and others (easier access meant a reduction of piracy), since reports were showing a drop in piracy with the increased uptake of streaming.
However, what happens when you transition from sales of files (possession) to streaming (access) and suddenly have 200M, 500M, 1B people who cannot use music in any fashion they like, and can’t obtain access to the file?
Music is no longer a passive experience. Users don’t simply want to listen to music, they want to do something with it. Yet no streaming service is allowed to let music files “leave” the service, as this would no doubt create both an issue of piracy, but limit the ability of rights owners to monetize this usage, not to mention tracking it would become an absolute nightmare. Unless you can solve this issue (expanded usage/rights), this form of piracy will continue to grow as a spectacular rate.
Issues like “stream-ripping” and “right-click infringement”, are impossible to stop with the current methodology surrounding media access because it is nearly impossible to lock every creative asset down, and frankly no user or technology platform is interested in going back to the days of DRM.
Today you can use a series of Apps, who have 100% legal applications for their technology, that can capture almost any form of creative asset, in high definition, and then convert that asset into almost any other format for distribution. Those files can then be distributed through encrypted social media networks, without detection, and cannot be stopped or shut down.
A single “stream-ripped” video or music file, distributed by one person in an encrypted messaging platform, can be on over 100M devices within 24 hours. This would occur invisibly, with no tracking, no monetization, and it cannot be stopped.
While I support Article 13, there is a massive technical challenge that has to be solved by the music industry, that also requires some shifting of the idea that licensing developers as a deal-by-deal model does not work. There are over 80k apps submitted to app stores each month. The current business models need to be adapted to this reality.
But the industry does love its contracts and bonus checks.