What are the advantages and disadvantages of intellectual property in the digital age?

What are the advantages and disadvantages of intellectual property in the digital age?

Intellectual property (IP) is an umbrella term that covers copyright, patents, trademarks, designs, circuit layout rights, plant breeders’ rights and confidentiality and trade secrets. Each of these terms covers a different type of property that is made up of knowledge. Many of these terms cover physical objects, however it is the idea behind them that counts and needs to be protected. The above terms are all for different types of intellectual property; patents are for products, trademarks are for works such as smells, logos and pictures. Design rights are for the shape of something. Copyright is for literacy, for example music, film, multimedia and computer programs. Circuit rights are for the way electronics are set out. Plant breeders’ rights are for new plants. In Australia for all of the above intellectual property terms, apart from copyright and circuit rights, you must apply for the licence and have it approved by the appropriate people and groups. The reasons these’s laws need to change is because people are stealing large amounts of IP in the form of music and movies, and the culture of the new generations has become one of internet surfing, peer to peer (p2p) downloading and hacking and because of that there are many advantages and disadvantages to intellectual property laws and how it is used in the digital age. All of this means that governments and interests groups are making lots of attempts to move intellectual property laws with the times. Some of these include The Australian Copyright Amendment (Digital Agenda) Act 2000 (Act No. 110 of 2000) and in the US The Digital Millennium Copyright Act Of 1998. Both of these have had some success in combating the illegal downloading and distributing of intellectual property. However, with the speed of the Internet age, it is almost impossible for the laws to keep up. On the Electronic Frontiers Foundation (EFF) website they say “IP serves important public purposes: encouraging creativity (copyrights) and innovation (patents and trade secrets) and protecting the public from being defrauded by misleading advertising (trademarks). At the same time, IP must be carefully limited to protect your rights to create, access, and distribute information, as well as to develop new ways to do so.” When the EFF mention ‘IP must be carefully limited to protect your rights to create, access and distribute information.’ They are talking about fair use which is a part inside the IP laws which allow normal everyday users to legally use/ distribute/ change are small part of someone else’s IP.

A big part of intellectual property is money. The original concept of intellectual property was that everyone who had played a part in creating something that is in the mind makes some sort of profit. Due to illegal file sharing the Motion Picture Association of America (MPAA) claims that $2.3 billion was lost in the US alone from pirates (1). However this maybe in part untrue because giving away intellectual property such as movies can sometimes mean more profit for the seller. For example peer to peer (p2p) file sharing protocols, such as Bit Torrent, offer movies at about a 320px X 240px size, which equates to around a 900mb file for a 2-hour video. This is nowhere near DVD quality (720px X 480px) and if someone really enjoyed the movie then they would be likely to go and buy it. The other example is music people may want to download an album from artist, to find out whether or not they want to buy the artists new album.

While Intellectual Property appears to be protecting the creators of the music, this is sometimes untrue due to the way the music industry works. Because of the popularity of music there are lots of small local bands that are formed. The recording industry has a lot of choice when it comes to choosing the band it signs, and the ones that they don’t. This means that bands get unfavourable contracts, which signs way most of their intellectual property rights and gives it to the recording company. According to Steve Albini, an independent and corporate rock producer from http://www.negativland.com/albini.html, a recording balance sheet for a band may look like this. (All below cost $US)(5)

Bands Initial Cost and Profits
Advance    +$250,000
Manager’s Cut    -$37,500
Legal fees    -$10,000
Recording Budget    -$150,000
Producer’s advance    -$50,000
Studio fee    -$52,500
Drum Amp, Mic and Phase “Doctors”    -$3,000
Recording Tape    -$8,000
Equipment Rental    -$5,000
Cartage and Transport    -$5,000
Lodging while in studio    -$10,000
Catering    -$3,000
Mastering    -$10,000
Tape Copies, Reference CDs, shipping tapes, misc expenses    -$2,000
Video Budget    -$30,000
Cameras    -$8,000
Crew    -$5,000
Processing and transfers    -$3,000
Off-line    -$2,000
On-line Editing    -$3,000
Catering    -$1,000
Stage and Construction    -$3,000
Copies, Couriers and Transportation    -$2,000
Director’s Fee    -$3,000
Album Artwork    -$5,000
Promotional Photo Shoot and duplication    -$2,000
Band Fund    -$15,000
New Drum Kit    -$5,000
New Guitars x2    -$3,000
New Guitar Amp Rig x2    -$4,000
New Bass Guitar    -$1,000
New Bass Amp    -$1,000
Rehearsal Space Rental    -$500
Big Party for Friends    -$500
Tour expenses (5 weeks)    -$50,875
Bus    -$25,000
Crew x3    -$7,500
Food    -$7,875
Consumable Supplies    -$3,500
Wardrobe    -$1,000
Promotion    -$3,000
Tour Income    +$50,000
Agent’s Cut    -$7,500
Managers Cut    -$7,500
Merchandising Advance    +$20,000
Manager’s Cut    -$3,000
Lawyer’s Fee    -$1,000
Publishing Advance    +$20,000
Manager’s Cut    -$3,000
Lawyer’s Fee    -$1,000

Bands Costs and Profit Once CD has Hit the Market
Record Sales (250,000 @ $12)    $3,000,000
Retail Revenue Royalty (13% of 90% of the record sales    +$351,000
Less Advance    -$250,000
Producer’s Points (3% minus advance [$50,000])     -$40,000
Promotional Budget    -$25,000
Buy out from small independent label the band started out with    -$50,000
Total Band Royalty    -$14,000

Record Company Income
Record Wholesale Price ($6.50 x 250,000)    +$1,625,000
Artist Royalties    -$351,000
Deficit from band Royalty    -$14,000
Manufacturing, Packaging and Distribution ($2.20 x 250,000)    -$550,000
Total Record Company Profit    $710,000

The Final Balance Sheet
Record Company    $710,000
Producer    $90,000
Manager    $51,000
Studio    $52,500
Previous Label    $50,000
Agent    $7,500
Lawyer    $12,000
Band Members    $4,031.25

A common form currently of digitally protecting copyrighted material is called Digital Rights Management. Digital Rights Management (DRM) can be found all over the place. It is the thing that stops you playing music bought of the Bigpond Music Store on your Apple iPod. It is the thing that stops you ripping DVD’s. It’s also the thing that stops some CD’s being ripped (2). However the real problem with DRM is that if someone wants to get past it they can. Things like the Hymn Project break the DRM on iTunes music. The only people that the DRM really holds back are the normal every day consumers as anyone who really wants to listen to something or to share it over the Internet knows ways to do it.

Intellectual property also affects the person/persons holding the license because it means that things cannot be advertised as well. Many shows have been revived and have become popular due to illegal practices online. Battlestar Gallactica looked like it was going to be axed after one session but when was put on a Bit Torrent site, American Bit Torrent users got to watch it before it was broadcast in the US. It then became popular and when the Sci-Fi channel finally broadcast it lots of people were watching it, to either see a better version or because of the hype from other people who had already seen the show via Bit Torrent. Shows like Saturday Night Live, The Daily Show and The Colbert Report have all been helped by being distributed by You Tube and other video sharing sites in small skit segments. Once people have bits of the shows they are more likely to tune in for the full show. So while broadcasters miss out on some of the adverting because You Tube unloaders get rid of it. The broadcasters gain viewers later on and there for actually gain revenue from You Tube viewers. However, all of the videos have been taken down from sites like You Tube, by the broadcasters due to IP laws thus the broadcasters do not get to receive the benefits. Apart from the monetary benefits the IP licence holder is encouraged creatively.

Many people are sued by big groups like the MPAA and the Recording Industry Association of America (RIAA) for not following IP laws. This is not a very good thing because groups like the MPAA and the RIAA don’t really think about whom they sue. They use unfair claims and questionable legal tactics to sue anyone who they think may be infringing on copyright. This has included dead people, and 12-year-old kids. The point of IP laws are for the musicians and people making and writing the music to get money so they can be more creative. However, groups like the MPAA and the RIAA draw their revenue from the works of the artists and make their money from collecting money. When suing people they change the charge of the song from 70c (US) (cost on iTunes Music Store) to $750 (US) per song, which is 1070 times more, then the consumer would have bought it for (7). They also invade everyday people’s privacy with complicated End User License Agreements (EULAs), which most people click through. For example, Amazon has recently released a movie watching service called Unbox, which allows people in the US to download and watch movies. But to buy these movies must agree to a EULA, which allows Amazon to have software on your computer that monitors your every move, and report it to Amazon. Even by removing the Unbox software they will still be able to track you. If you remove the Unbox software all your movies are removed as well and there is no way, apart from re-purchasing them, to get them back. If you travel overseas from the US with your computer you also will not be able to watch the movie because of geographical restrictions in the EULA. On top of this Amazon have the rights to change any of these terms at any time, without your prior knowledge.

The way the Internet moves it is almost impossible for the law to change and evolve so that it works with the Internet, because law has a lot of due process and has to be approved by many people. This is very different to how the Internet works. A couple of people can change the way the file sharing world works. This has been recently highlighted by an announcement by the Pirates Bay Bit Torrent site (3) and subsequent interview on the Bitlord Show (4). They mention something that is ‘coming’ while there are no real details on what this could be. This again could change the p2p world forever, thus throwing the record and motion picture groups into even more chaos.

A solution was mentioned on a recent episode of Diggnations (6) Kevin Rose and Alex Albrecht, the hosts of the show, talked about how they downloaded a CD from a Bit Torrent and really enjoying the music. They then went to a concert of the band, and while they were there they gave $30 each to the band. This is a much better method as it means that the money goes directly to the artists instead of going through the middleman and the middleman taking some of the profit. I think this method is good to some extent it realises on trust and it means you can give as much or as less as you want for the music you listen to.

IP is a necessary part of the digital culture and digital creativity, however the way that we are currently going about enforcing it is wrong. This has something to do with the ever-changing atmosphere of the file-trading network, but also because people try to take advantage of the law. This issue is very complicated and any solution has to be flexible enough to cope with future technological advances.



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One Response

  1. Regardless of the effects of piracy, whether positive, negative or mixed, the core issue is that when someone spends hundreds of hours and thousands of dollars making something and marketing it, the law says that they should then have the right to determine how it is used. This is the idea behind intellectual property.

    In my opinion, it is beside the point to speak about whether piracy is good for business or not. Even if it is sometimes good for business via additional publicity, the publicity is gained from someone giving a product away that is not theirs to give. It is not free publicity – every copy distributed costs a potential sale, because who is going to pay for something they already have?

    The real question is whether works of labor should be owned by the person who created them, the person who markets them, or by the public. Anyone who participates in or supports getting copyrighted information for free without permission of the copyrighted owner cannot legitimately lay claim to ownership of anything they have worked for. The whole idea of private property goes out the window pretty fast.

    And about the music business – the numbers you are throwing out there are only true of about 5% of the musicians trying to make a living. Nowadays, most musicians will actually make over 50% of what you pay to iTunes to buy their songs. All those other costs you cite are pretty much non-existent for the majority of musicians. The reason why people pirate music so much is simply because it is so easy to pirate. People would steal jewelry just as readily if they could get away with it as easily.

    The solution you give about the guys pirating the album then giving $30 to each of the artists, well hey, at least they did something. It’s a lot more than most people do. Still, there are a lot of people involved in releasing an album and marketing it. Writing the music is about 10% of the work involved in releasing an album. The rest of the money goes into album production, press and marketing costs, and the people who are producing the album and getting it out there deserve their fair share. To give money directly to the artists is to rob everyone else involved in publicizing and promoting the artists from their fair share of success.

    Making art is the fun part. The agents and managers and producers who work day in and day out to get gigs for the artists and produce their albums and market their music generally work even harder than the artists do, which is something that of course most people fail to see. Because these people are not seen by the adoring fans, the fans think it is morally justifiable to pirate music. But the truth is that it if weren’t for their managers and publicists and producers and engineers, you would have never even heard about U2 or The Beatles or Bob Marley or anyone else in the first place, and you wouldn’t know what to type into Bit Torrent.

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