Challeging innovation – and reforming copyright

Steven Pearlstein’s column in this morning’s Washington Post “A Sound Marketplace For Recorded Music” is a case study in how to attempt to stifle innovation:

Here in Washington, there is nothing more amusing than watching business interests work themselves up into a righteous frenzy over a threat to their monopoly profits from a new technology or some upstart with a different business model. Invariably, the monopolists (or their first cousins, the oligopolists) try to present themselves as champions of the consumer, or defenders of a level playing field, as if they hadn’t become ridiculously rich by sticking it to consumers and enjoying years in which the playing field was tilted to their advantage.
A recent example is the political and legal attack mounted by the music-recording industry against the upstarts of satellite radio.
You’d think an industry that has managed to turn out so much mediocre music for so many years, done so much to lower moral standards and lost so much business to illegal file-sharing would have something better to do than attack some of the few distributors that are actually expanding the market and charging for music. But the prospect that the industry might not extract every last penny out of the new satellite radio services and their customers is simply unacceptable to the Recording Industry Association of America.
. . .
The fundamental problem here is that there really isn’t a free and open “market” for recorded music.
It starts with copyrights, which are nothing more than little government-issued monopolies. As a result of the recording industry’s lavish political contributions, Congress has extended the copyright for music to absurd lengths of time (70 years after the death of the artist) and absurd situations (singalongs at Boy Scout campfires). This is well beyond what is reasonably required to meet the aim of encouraging artistic creation.
. . .
The copyright laws also effectively set up the record labels as a cartel that can bargain as a group with satellite and Internet radio operators over royalties and other terms. Not surprisingly, the same cartel-like behavior appears to extend to the industry’s negotiations with Apple’s iTunes and other download services, which seem to strike suspiciously similar deals at suspiciously similar times with all of the major recording studios. It’s perhaps no coincidence, then, that the industry has already settled an antitrust suit over price fixing of compact discs and is reported to be the subject of another antitrust probe regarding prices for music downloads.

After a succinct analysis of the problem, Pearlstein’s solution is straightforward:

if the goal here is to encourage innovation and competition in the market for recorded music, I can assure you that lawsuits and lobbying battles are a lousy way to go. The better strategy is to prune overgrown copyright protections, deregulate the industry and let the marketplace set prices and decide which companies and technologies and business models survive.

I agree to some extent – but wonder how far he is willing to push the competitive market. Is Pearlstein willing to go as far as the French in forcing Apple to open up the iPod? As far as I can tell, a significant part of the iPod success is due to the proprietary linkage between the gadget (iPod) and the download service (iTunes). Yes, the design is of the iPod is fantastic – but the business model is even better.
What the French propose to do is break that business model as anti-competitive. As one commentator in Wired put it, it may be the case of “How France Is Saving Civilization”:

Apple may not qualify as a literal monopoly — there are lots of ways to get music and buying online accounts for only a small fraction of total music sales. But the sliver it does control it controls almost completely, and it’s not out of the question to suggest that this sliver will ultimately become the only way people will buy music in the future.

Whether you agree or disagree with the French action, it highlights the problem of competition (anti-trust) policy in the equation. When is a business model innovation and when is it simply a new monopoly?
Implied, but not stated in Pearlstein’s solution is a careful analysis of the linkage between intellectual property and competition (anti-trust) policy. A few years ago, the Federal Trade Commission (FTC) did such an analysis in 2003 – To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy – which we featured in an Athena Alliance congressional luncheon briefing last year. Unfortunately, that report has had little impact, as patent reform legislation is stalled and no one is even considering copyright reform.
As Pearlstein says, it is time to “prune overgrown copyright protections.” In fact, it may be past time. Let us see if the fight he describes between satellite radio and the music-recording industry will provoke action.

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