Open
Source Law Publications
Submission to
Senate Judiciary Committee
in response to:
Request for public comment in relation to Protecting
Creative
Submission by: Brendan Scott (contact details at end of submission)
Submission dated: April 22, 2002 (update to submission
of April 8, 2002)
[BAS notes:
(1) a similar submission was made to a House Committee at roughly the same
time covering similar ground as this submission;
(2) one of the themes of this submission is that "rich content" has been
a poison pill for businesses on the internet. Shortly after this submission
was made AOL Time Warner issued a profit warning (May 02). As such,
that profit warning is not dealt with in this paper, but it is further evidence
of the danger of focussing on "rich content".]
1. Executive Summary
(a) When applied to multi-use appliances such as
PCs, the impact of the CBDTPA and similar schemes is qualitatively
different from schemes design for single use appliances (eg Macrovision
for TV). They create an unacceptable level of risk to the economy
as a whole and should not be pursued.
(b) Extreme care should be taken in assuming that
commercial content will have a significant part to play on the internet.
History indicates its role will be marginal.
(c) An overemphasis of the importance of content
has, to date, resulted in many poor investment decisions and caused
substantial damage to the economy. Some examples from the telecommunications
sector are provided.
(d) The broader economy should not be engineered
to suit copyright. Rather, copyright should be engineered to suit
the broader economy.
(e) Copyright is an important component of the
economy. However, there is a growing perception that copyright has
entered the realm of corporate welfare. If this perception is allowed
to continue respect for copyright generally will be undermined.
(f) Copyright protectionism should only be pursued
so as to reduce the Aggregate Content Cost of each item of content
while securing the production of that content.
(g) Creation of content is not an end in itself
and must be balanced against the damage which copyright protectionism,
and the overall emphasis given to protecting content, does to the rest
of the economy.
(h) The focus of copyright protectionism should
be on fostering the difficult task of the creation of content not
on protecting the relatively simple task of distribution. Indeed,
competition in the distribution, publishing and production of content
should be fostered, perhaps by giving competitive distributors/publishers
a right of access to content prior to finishing.
(i) All legislation extending copyright protectionism
should include a statement identifying: (a) the main beneficiaries
in practice of that extension; (b) in what way those beneficiaries
are engaged in “science or the useful arts”; and (c) how the extension
relates to a “writing” or “discovery” within the meaning of the
Constitutional mandate in Article I, Section 8, Clause 8.
2. Scope
2.1 This submission supplements an earlier submission dated
April 8, 2002 by providing some examples, taken from the telecommunications
industry, showing the adverse effects of overemphasizing the importance
of rich media content on the internet. This submission also adds
paragraph numbering and makes some incidental amendments. A copy
of this submission marked up from the April 8 submission is available
on request.
2.2 This submission focuses mainly on issues relating
to music and video with particular attention to the Consumer Broadband
and Digital Television Promotion Act, and its former incarnation, the
Security Systems & Standards Certification Act. The later part
of the submission makes comments on policy in this area. While some aspects
of this submission can be extended by analogy to other subjects of copyright
protectionism (including convergent media) the analysis undertaken here
has not considered these other subjects in detail.
2.3 The term “content” is
used with varying meanings within this submission. At one end of its
spectrum, the only thing available over the internet is content. This
submisison is not addressed at that meaning of content. Except where
the context requires otherwise, the term “content” is used in this submission
to mean content which would not be produced without the benefit of a
legislative monopoly.
2.4 This submission is made in my personal capacity,
not on behalf of my employer or any other body.
3. Problems with CBDTPA and Macrovision
like protection schemes applied to technology generally
3.1 The Senate is currently considering the mandating
of a copy protection scheme into the operation of technological devices.
These schemes are subject to a number of difficulties including:
(a) Exploitation by foreign nationals. For example,
citizens of non-TRIPS or non-Berne Signatories could distribute content
within the US encoded in accordance with the scheme, achieving de facto
protection without being required to offer reciprocal protection to
US content as required by those treaties.
(b) A technological protection scheme
effectively forces the ratcheting up of copyright protectionism.
Should legislators decide in the future that a reduction in protectionism
for the content industry is warranted such protection will not be able
to be achieved in practice for existing works because it will be set
in the stone of the outdated standard.
(c) Any scheme must necessarily be anti-innovative
in that new technologies must be forced to fit within the scheme.
(d) Finally any scheme will increase
the “minimum to play” for any would be entrants to the market. Effectively
this means that some smaller players will be locked out of the market
because of inability to bear compliance costs. Further, it will have
widespread unintended consequences. If a home owner wanted to write
their own software to monitor and control the lighting in their home
such a scheme would prevent it (in so far as they would not have the
expertise to comply with the scheme), and would criminalize that home
owner giving it to his neighbor.
3.2
While the Macrovision experience has been appealed to by way of precedent,
the analogy is a poor one. Indeed, the fundamental problem with a Macrovision-type
scheme is that it makes a very mean instrument of a computer. It assumes
that a computer is little more than a glorified television. There is
a wealth of empirical evidence to show that consumers use computers for
almost everything but watching television. They use it to transact business,
to communicate with loved ones, to lobby. They use it across the whole
spectrum of human activity. While one might argue that a protection
scheme can be applied with some success and with little impact more generally
to an instrument which has but one purpose, it is extremely courageous
to assert that the collateral damage of such a scheme applied to so
universally utilitarian a device as a computer is even knowable, let
alone to assert that that damage is acceptably small. A 1% reduction
in efficiency of someone when they’re watching a movie is a fundamentally
different proposition to a 1% reduction in efficiency for any use of a
computer – a 1% reduction of the economy across the board is a very
serious thing.
4. Copyright hinders broadband/ Content is not king, but handmaiden
4.1
It is difficult to see how copyright laws can do anything but stifle
demand for broadband. Prima facie, the weaker the restrictions on copying,
the more copying will occur and therefore the more demand for broadband.
Further it is a dubious proposition that content ideally suited for
circuit switched technology supported by strong quality of service metrics
(such as music and video) will find a natural home in a packet switched
one in which quality of service is difficult, if not impossible, to guarantee
(broadband internet). Quality of service is discussed in more detail
in section 5.
4.2
That said, it is the author’s view that the main use of broadband will
occur through consumer to consumer interactions, whether it is through
the exchange of happy snaps of the kids or videos of skiing holidays.
That is, and despite the mantras throughout the 1990s, it is unlikely
that commercial content will hold a place of any significance on the internet
in the short to medium, and perhaps even in the long term. The technologies
to develop and deliver commercial content (free to air, cable and radio)
are already cheap, well developed and undergoing continual innovation.
They have business models which are effective off line, but have been
conclusively proven by experience to be ineffective on line. Further,
they are supported by established value added services for the selection
and presentation of content and the distribution of program guides. There
is a wealth of empirical evidence to show that consumers will not pay
for content over the internet and there are no successful business models
based on the sale of content (although there are suggestions that sex
related content has unique characteristics which permit it to have a
viable internet model). This experience extends from the failed Microsoft
Network in 1995 through to the dot com crash of 2000 to the present day.
No one wants to buy content over the internet. In short, consumers have
sent the resoundingly consistent message that they do not see their $1000
computer as a substitute for their $150 TV set, particularly where they
are required to be more active in the identification and acquisition of
content.
4.3
The best analogy to the internet is perhaps the telephony system. The
internet implements its functionality in a low friction way. While
there are examples of telephones being used as a means to acquire proprietary
content, they are, by and large, used to exchange content in a non-proprietary
way. There no reason to believe that applications such as video on demand
or music on demand will have any greater market on the internet than
astrology hotlines do on the telephony system. That is, they will have
value as a niche, and a profitable one for some people, but in the scheme
of things they will be comparatively unimportant.
4.4
For these reasons it is vitally important that the tail does not wag the
dog in policy making. That is, copyright, and the expectations of
copyright owners, should be engineered to fit within the broader computer
and telecommunications infrastructure rather than causing that infrastructure
to be engineered to fit in with copyright’s requirements. This is especially
important given that any damage to the efficiency of that infrastructure
must necessarily impact all users of that infrastructure – that is,
on the economy as a whole.
5. Overemphasis on Content - Case Study Demonstrating Some Impacts
5.1
It is wrong to assume that overemphasising the importance of content,
and consequently overprotecting the content industry, simply provides
a benefit to content holders with no effects on the broader economy.
The area of telecommunications provides some counter examples.
5.2
In the early to mid 90s, as the internet came more to the attention
of the broader community, certain interest groups promoted the idea
that rich media content was a necessary component of a successful broadband
economy – “Content is King”, to use the catchphrase. This misreading
of the importance of rich media content was a significant contributor
to the great tech wreck of 2000 and continues to affect strategic investment
decisions within the telecommunications industry.
Examples
5.3 Money wasted on content
“[Excite@Home] squandered a fortune creating content
nobody wanted. Ask the millions of Excite@Home subscribers what they
think of the service and they rave, but most switched their home page
to Yahoo or their employer's Web site within days of being hooked up
and never looked at Excite@Home's pages again.”
R Fixmer, Interactive Broadband Fantasy v Reality,
March 4, 2002. www.eweek.com/article/0,3658,s=721&a=23547,00.asp
(a) One of the value propositions of the failed Excite@Home
strategy was to provide subscribers with access to a selection of premium
content. Excite@Home paid very high costs for the acquisition of content.
There is no evidence to suggest that subscribers ascribed much, if
any value to this premium content stable. Indeed, there is evidence
to the contrary.
(b) The Excite@Home experience is not unusual. General
encouragement and boosting of the importance of “content” led telecommunications
companies the world over to create invest in content products as an
adjunct to their stable of carriage products. In their wake now lay
the discarded remains of countless portals, vortals and all manner of
internet content hubs.
5.4 Rich Content has skewed Telecommunications
Investment
“The excess capacity problem is most severe in the telecommunications
sector. Lots of fiber has been buried to expand long-distance capacity.
At present this part of the industry has a utilization rate of 2.5%.
Yes, 2.5%. Cut-price competition among long distance providers promises
to continue.”
Bruce Yandle, THE ECONOMIC SITUATION
VOLUME IX, NO. 2 A quarterly report on economic trends.
MAY 2001.
http://www.strom.clemson.edu/teams/ced/esr/9-2Summer01.pdf
(a) This beguiling allure of content
has also affected the strategic architecture investment decisions
of telecommunications companies. The technology underlying the internet
is fundamentally different to that of free to air and cable TV services.
The different technologies which underly them are called respectively
packet switched (internet) and circuit switched (broadcast/cable TV).
On the internet data is crunched into millions of little packets which
are sent when there is an opportunity, with the packets reassembled
by the recipient. On cable, a whole circuit (in this case a channel)
is reserved for use and the data is sent in one big continuous chunk.
The great advantage of circuit switched technologies is that you can
give quality of service guarantees in relation to data carriage – you
know that you will have capacity because you’ve reserved the whole
of the circuit in advance. The great drawback of circuit switched
technologies is that they are hideously inefficient – the capacity
is reserved (and therefore you need to pay for the whole of it) whether
it is used or not (so in order to be economical, content must be found
to fill it).
(b) The great value of the internet
is that it is miraculously efficient. In a circuit switched world (ie
TV), if you are talking to someone on the telephone each moment of silence
(eg while you collect your thoughts and there are plenty even in the
most animated of conversations) is carriage capacity which is lost.
Under a packet switched regime (ie the internet) much more of this capacity
is able to be used. In this example, the wires between the speakers
are not dedicated solely to talking. Therefore they can use the physical
wires send non time critical data (eg an email) on a “best efforts”
basis, whenever there is silence on the line.
(c) The drawback of the internet is
that it is very difficult to give quality of service guarantees.
As there is only one pipe through which all content passes, content
takes its chances once it arrives at the pipe – it can’t reserve its
trip in advance.
5.5
Practical impacts at an infrastructure level – long distance architecture
(a) Normal internet usage is a store and forward or store
and review implementation (eg downloading reports from the internet
to read later). As such it is highly forgiving of short lived failures
of service. It operates in bursts, but those bursts can be delayed
for a short time (on the order of seconds) without having any perceived
impact on the acquirer of the carriage service. Early dial up services
have relied heavily on this fact assuming that most of the time spent
online by consumers is not spent acquiring content, but rather finding
and reviewing it. As such, they are able to provide “attractive” time
based rates, even though their costs are data acquisition costs.
(b) On the other hand, “rich content”
implementations if they are streamed or interactive are highly unforgiving
of low quality service. Anyone who’s had drop outs on their cell
phone knows that poor line quality is just plain unacceptable.
(c) Telecommunications companies have
pursued a strategy of allowing the support of interactive and streaming
rich content implementations as part of their broadband implementations.
This is partly because of content hype, but also because of the creation
of streaming media. One of the reasons for the emergence of streaming
media is that they allow a greater degree of control over content
– they play the content in real time without the user being able to
save the file for later access. As such they have been strongly endorsed
by copyright protectionists.
(d) Because of the architecture
of its carriage techniques, in order to provide acceptable quality
of service over the internet to support the delivery of rich media
content it is necessary to engineer the size of the “pipe” against
expected peak usage.
(e) In an effort to support the prophesied explosion
of rich media content on the internet telecommunications companies
have drastically overengineered their capacity requirements. During
2001, the world was swimming in excess capacity that no one could use
– see quote from Bruce Yandle above.
(f) In this way overemphasis of the importance
of content has already led to large and direct costs to telecommunications
companies around the world.
5.6 Practical effects at the investment
level – reticulation to kerb
(a) Another way in which the content
centric view of the world has affected telecommunications infrastructure
is in the manner in which broadband to the home has been implemented.
As a general rule, these implementations have taken place on the
assumption that internet usage would mirror TV usage in that users
would expect to have a huge pipe leading into their home (to access
data) but with only a small pipe leaving their home (to serve data
– mainly requests to access other data). In short, it is faster to
receive an email via broadband than it is to send that same email.
(b) This is most prevalent in, for
example, the popular v.90 modem standard, where the advertised 56K
per second speed only applies to downstream rates. The upstream rate
for these modems is only 33.6K per second. This is a technical limitation
resulting from early modem design decisions which has been inherited
today. A similar approach has been taken in relation to the manner
in which broadband implementations to retail customers have been implemented.
Customers are provided with attractive download speeds, but very unattractive
upload speeds. That is, design decisions were made that technical limitations
on the rate at which data can be sent from a consumers computer to
the rest of the internet were acceptable and such limitations were,
and continue to be implemented.
(c) If end users want the ability
to share their data, the design decision to limit upstream capacity
means that products which fill this need are more difficult to provide,
and perhaps not available if there is mass demand (both upstream and
downstream capacity is shared across users at some point much the same
way as turning the tap on in the kitchen affects water pressure in the
bathroom).
(d) As content has been widely endorsed
as important telecommunications carriers have tried to create a separate
value added market for the housing and serving of content. In order
to push their value added hosting services, and because of the upstream
design limitations discussed above, carriers’ broadband terms often
prohibit the running of servers by end users. This serves as a barrier
to entry for small, and especially not for profit participants, who
are unable to afford the value added fees (and for whom the value add,
such as server housing, administration and maintenance are unnecessary).
5.7 Impacts at the retail level
- carriage
(a) As a follow on effect of the blind
focus on content, retail products offered to consumers have been packaged
on the assumption of acquisition of rich media content by consumers.
To support this, those packages must have high (or unlimited) caps
on the amount of data the consumer is permitted to download.
(b) There is a direct relationship
between data served to customers and the price of providing the service
to the customer (ie interconnection fees to acquire data from other
networks). Ironically, while high download caps are of great benefit
to pirates ripping off “warez” or mp3s from the internet (and devouring
capacity) they are of comparatively lesser value for the majority of
users who are surfing the web for their favourite eggplant recipes
(whose capacity usage is moderate).
(c) If carriers impose a low cap while
still touting their premium content as a market differentiator the
cap will not be reasonably commensurate with the ability to acquire
that premium content and they will consequently be exposed to misrepresentation
suits. Note it costs nothing to the carrier to provide their own
premium content to their subscribers because the content is housed
on the carrier’s own network. The carrier is not therefore exposed
to interconnection fees to acquire it. In practice however, high
use subscribers are not interested in the carrier’s premium content
and savvy enough to use their high cap to acquire warez and mp3s from
other network carriers forcing their own carrier to incur interconnection
fees.
(c) As such, and in addition to the
costs of excess capacity referred to in section 5.5, the price to
consumers of broadband packages has been unnecessarily inflated in
that low usage customers are subsidising high usage customers.
5.8 Poor billing systems mean these
effects cannot be solved by the market
(a) It is tempting to think that these
design decisions can be set arights by the operation of the market.
For example, one might argue that if someone wants premium content
imported from another network, they can be charged additional carriage
(as opposed to license) fees in relation to it to cover the infrastructure
expenditure incurred by their carrier. Conversely, content acquired
from the carrier’s own network could be charged at a reduced rate.
Unfortunately, this is impossible at present and will be for the near
future.
(b) Systems to produce bills for retail
customers on internet usage are advancing at a snail’s pace. It is
often difficult to determine what network the data served to the customer
has originated from, let alone the web site and the type of content
(in order to do this the switches directing data need to take time to
record where data is from – there is a trade off between speed and
record keeping which has, to date, favoured speed). This is complicated
by the packetized nature of carriage over the internet. There is no
way that these additional costs can be apportioned to the users which
want them. Indeed, for similar reasons it is difficult for carriers
to determine what proportion of their users are accessing premium content
sites. Carriers have little choice but to provide bundled prices to
their consumers, perhaps broken into on net and off net components
(ie sourced from the carrier’s own network or a third party network).
(c) Again, this means that the architecture
decisions of carriers determine a bundled price to users. In practice,
this means that the price to users who are tolerant of low quality
of service guarantees has been inflated by the (incorrectly in the
author’s view) perceived need for content. It is the author’s belief
that this class of user is by far in the majority.
6. Calculating the Price of Monopoly -
Aggregate Content Cost
6.1 A cost can be attributed to each
item of content. That cost can be calculated by aggregating all sales
in relation to that content which occur throughout the duration of monopoly
rights over it. For example, if an item of content costs $10 a copy and
100 copies are sold through the duration of the copyright monopoly for
it, then the cost of that content (which we refer to as its Aggregate
Content Cost) would be $1000.
6.2 Clearly this analysis has been
structured to convey the essence of a costing model and it is not the
intention of this submission to describe a more complex model. However,
it should be noted that it is appropriate that the complete sale price
should be taken as the starting point and not just the content licensing
component of that cost (for example, content will have other costs such
as distribution, marketing, advertising, warehousing etc. It might be
argued that these costs ought not be attributed to the copyright monopoly).
The reason for this is that copyright protectionism effectively protects
such things as post-production and distribution and therefore inflates
the prices of those services.
7. Practical Effects of the Copyright Monopoly
7.1 The practical effect of current
copyright protectionism in the content industry is to shield distributors
from competition. The justification for this shielding is stated to
be to promote the creation of content. In a world in which the cost
of distribution is fast approaching nothing consideration should be given
to reworking the system so that it directly rewards creation, rather
than doing so indirectly through protecting distributors or distribution
of content.
8. Aims of the Copyright Monopoly
8.1 The commonly espoused doctrine
of the purpose of the copyright monopoly can be paraphrased as the provision
of incentives for the creation of content. The author believes that
this statement overemphasises the “incentive” component of content and
does not tell the whole story. Rather, in the author’s view, the aim
of copyright protectionism should be to minimise the Aggregate Content
Cost for each item of content while still securing the creation of that
content. Further, there should be recognition that the creation of
content is not an end in itself.
8.2 The recent history of legislation
in this area appears to operate from an almost opposite presumption – that
the Aggregate Content Cost ought to be inflated as much as possible
(on the basis that it increases the incentive for authors to create).
This occurs in many ways, from structuring the monopoly in a way which
applies to different or new forms or media, to extending the length
of monopoly protection.
8.3 For example, before the invention
of VCRs movie makers still made movies. That its distributors now
have an exclusive right to distribute a movie on video is a direct benefit
to distributors – and an increase in the Aggregate Content Cost for
that movie – but without giving any incentive to the creation of that
movie. One might argue that video distribution of movies is a good
thing and that it is acceptable that the Aggregate Content Cost increases,
even where those movies are pre-existing. However, the Aggregate Content
Cost ought to be increased only by the distribution and marketing costs
of a competitive distribution environment – not one in which these
costs have been inflated as a result of the copyright monopoly locking
out competition.
9. How much is too much?
9.1 As copyright protectionism was structured
to automatically give exclusive rights over the distribution of movies
on video, the invention of VCRs effectively increased the cost to society
of the creation of the movie. What is more, it increased that cost
after the movie was made – had VCRs not been invented, the movie would
still have been made, the licensing costs would have been less and the
excess able to be funnelled into more productive parts of the economy.
9.2 In this way copyright protectionism
redirects resources away from elsewhere in the economy. It is for
this reason that content creation should not be an end in itself and
that care should be taken to ensure that there is not too much incentive
for content creation. For example, according to RIAA and under the current
level of copyright protection, only 10% of CDs are profitable (see
http://www.riaa.com/MD-US-7.cfm). This 90% failure rate is counted
against released CDs so does not include the initial culling done by
publishing houses. In anyone’s terms this is a lot of wasted effort
by musicians, producers, advertisers – by everyone involved in the
industry. Serious consideration should be given to whether this effort
would have been put to better use in other industries.
9.3 Copyright protectionism should
be subject to review of its effects and the overall cost to the community.
In essence, protectionism of the content industry occurs at the expense
of other sectors of the economy. This leads to increased costs to consumers,
and a diversion of resources from less protected sectors of the economy.
An interesting thought experiment would be to consider how the creation
of content would be affected if the term of protection were brought into
line with that of patent protection.
10. Copyright is important
10.1 The author strongly supports the
securing for limited times to authors the exclusive right to their
writings to promote the progress of the useful arts. However, the
creation of content is not an end in itself and must be viewed as part
of the broader economy. Further, copyright protectionism is, of itself,
a restriction of the rights of, and therefore a taking from, each citizen
and consequently must be approached with extreme caution. Few other
industries receive the level of protection that the content industry
does. Some commentators even argue that the content industry would
not exist without that protection. Consideration should be given to
how much longer a grant of protection should extend beyond a reasonable
(and objectively determined) opportunity to amortise costs and secure
a return on investment.
10.2 While the nature of content is
such that some protection is appropriate to foster its creation there
is a point beyond which protection becomes mere subsidy or corporate
welfare. There is the growing perception that current copyright protectionism
is in the realm of mere corporate welfare and that it has been there
for some time. If this is the case, copyright protectionism in fact
harms the economy by inflating prices to consumers and drawing resources
away from more fruitful pursuits. It also has the effect of generally
undermining respect for copyright.
11. Recommendations:
(a) When applied to multi-use appliances such
as PCs, the impact of the CBDTPA and similar schemes is qualitatively
different from schemes design for single use appliances (eg Macrovision
for TV). They create an unacceptable level of risk to the economy
as a whole and should not be pursued.
(b) Extreme care should be taken in assuming
that commercial content will have a significant part to play on the
internet. History indicates its role will be marginal.
(c) An overemphasis of the importance
of content has, to date, resulted in many poor investment decisions
and caused substantial damage to the economy. Some examples from
the telecommunications sector are provided.
(d) The broader economy should not
be engineered to suit copyright. Rather, copyright should be engineered
to suit the broader economy.
(e) Copyright is an important component
of the economy. However, there is a growing perception that copyright
has entered the realm of corporate welfare. If this perception is
allowed to continue respect for copyright generally will be undermined.
(f) Copyright protectionism should
only be pursued so as to reduce the Aggregate Content Cost of each
item of content while securing the production of that content.
(g) Creation of content is not an
end in itself and must be balanced against the damage which copyright
protectionism, and the overall emphasis given to protecting content,
does to the rest of the economy.
(h) The focus of copyright protectionism
should be on fostering the difficult task of the creation of content
not on protecting the relatively simple task of distribution. Indeed,
competition in the distribution, publishing and production of content
should be fostered, perhaps by giving competitive distributors/publishers
a right of access to content prior to finishing.
(i) All legislation extending copyright
protectionism should include a statement identifying: (a) the main
beneficiaries in practice of that extension; (b) in what way those
beneficiaries are engaged in “science or the useful arts”; and (c) how
the extension relates to a “writing” or “discovery” within the meaning
of the Constitutional mandate in Article I, Section 8, Clause 8.
12. Details of Author
This document is submitted by: Brendan Scott
C/: Level 37
2 Park Street
Sydney, Australia 2001,
bscott@gtlaw.com.au
To be fair, the excess capacity can be
attributed in part to technical advances in carriage technology.
A similar argument might be made in relation
to download speeds offered to consumers, although it is less clear that
download speeds have been overengineered.
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