Thursday 18 August 2011

Kiwi ISP boss says that three strikes is the wrong model

Allan Freeth, The chief executive of New Zealand ISP TelstraClear, has spoken out against his country’s Copyright (Infringing File Sharing) Amendment Act 2011, which comes into force on September 1st. The New Zealand legislation is another example of the 'three strikes' legislative approach adopted by France, South Korea and which will be implemented in the UK. The Act introduces a set of penalties (described by some as 'draconian', others as 'inffective') that impose fines and possible account suspension for infringing activities, and it involves Internet Service Providers in the process of identifying and notifying account holders based on IP addresses.

Freeth said that “TelstraClear respects copyright and supports the ability of rights owners to realise value from their intellectual property. But a business model that has to be propped up by specific legislation in this way is flawed and needs to change,” adding The new law will not help copyright owners defend their rights" and “It may encourage parents to take more notice of what their kids are doing online, and that’s a good thing. But it won’t stop those who really want content from getting it.”

Freeth said his company’s market research found definitive reasons why people illegally downloaded content which were: (a) the legal product takes too long to become available; (b) it costs too much; (c) the packaging and distribution of physical music, movies and games is unnecessary and costly; and (d) they believe the business model is outdated and out-of-touch.

Three main themes emerged from TelstraClear’s study which hopes to reconcile the financial needs of content owners and creators with customers’ expectations for content in a broadband world. One was to forge stronger bonds between the artists and the audience, which the respondents thought would result in reducing the overhead costs of traditional business practices major companies and therefore lowering the cost of legitimate content. Second was to implement different business models, such as advertising supported, sponsored, or getting lower quality for free and paying for improved quality. Third was to distinguish between consumers who copy for personal use and people who profit from illegally copying and selling content, with the latter receiving harsher punishment.

Freeth said “Instead of bringing in a law that we believe will not and cannot work, our government should be breaking monopolies, allowing personal choice and letting New Zealanders experience information and entertainment when the rest of the world does” adding “Instead, it has chosen to introduce a law that could turn ordinary Kiwis into law-breakers.”


Crosbie Fitch said...

Yes, as I've been saying for the last decade, sell music - NOT copies.

Commerce in intellectual work means exchanging the work for the money of the people who want it.

It doesn't mean forcing people to buy that which they can make themselves for nothing at a %10,000 markup.

I have almost completed the Contingency Market that provides a facility for artists to exchange the production & publication of their work, for the money of their fans (those who'd like the work produced & published).

Artists are already used to exchanging their work for publishers' money. Without copyright they simply deal directly with their new publisher, their fans. Their fans pay for their work, and then reproduce and distribute copies until the cows come home, promoting the artist, to build a larger fan base and larger commission for subsequent work.

Trouble is there's a catch 22 situation. No-one will believe the traditional copyright business model can be surpassed until they see art being exchanged for money directly with fans. And yet, no-one will believe art can be exchanged for money directly with fans sufficient to sponsor any such venture until the copyright business model has been thoroughly discredited and surpassed by an alternative.

David said...

I am glad to see that the New Zealand ISP believes that those who profit from illegally copying and selling content should receive harsher punishment. Because in substance, if not in law, that is precisely what ISPs themselves are doing: they are profiting from selling bandwidth that consists to a massive extent of illegally copied content.

As for Crosbie Fitch, hasn't it occurred to him in the last 10 years that his own 'business model' involves selling 'copies'? I don't think he envisages musicians singing a song down the telephone: he envisages selling recordings, i.e. COPIES.

What he proposes is actually a return to the old model of publishing by subscription, which was used a lot in the 18th century (oh the irony!) for publishing expensive or specialised books. The author or publisher would issue a prospectus, obtain advance orders, and only publish the book when there were enough subscriptions to cover the costs.

Of course the subscription model *could* be used for music, and to some extent it already is, as in the case of Pledge Music. But it has some obvious limitations, the most serious being that only hard-core fans - those with a really strong interest in an artist's work - will be willing to subscribe in advance. Everyone else will be content to wait and see. And it gives nothing at all to the artist after the date of public release. There would therefore be little relation between the long-term popularity of a work and the reward to the artist, so it fails the criterion of basic fairness.

Crosbie Fitch said...

David, no selling a recording is not selling copies. If a thousand fans offer a musician $10 each to produce a studio recording of a particular work, then they are paying $10,000 for the recording. Just as a label might have once made a similar bargain, this time it's the fans making the bargain. The fans have already demonstrated they can then make and distribute millions of copies for nothing. So, no, copies aren't being sold here, though there's no need for a law prohibiting anyone from doing so (if they can add value and make a buck that way).

Yes, this is a return to the pre-copyright model of exchanging intellectual work for money, as opposed to the exchange of copies at monopoly protected prices - the 'model' favoured by the Stationers' Guild and those who lobbied for legislation of monopolies via the Statute of Anne.

To say that subscription (in its original pre-copyright meaning) has the limitation that it is not able to provide a monopoly rent, is something only a copyright supporter could say with a straight face.

Yes, the artist exchanges their work for the money of their fans, that fraction of their audience who are interested enough to commission them. This is how the exchange of work usually operates in the absence of a state granted monopoly. And the revenue will indeed be proportional to its value in the eyes of those commissioning it as opposed to its subsequent popularity (which increases future revenue by increasing the size of the fan base commissioning further works).

Whether you use the basket I sell you for carrying dung or gold bullion, I have no natural right to a share in the subsequent value you extract from my work. The same applies to weaving words into poems as it does reeds into baskets.

Pay the poet to write a poem, or write one yourself. Pay the printer to print a copy of it, or make a copy yourself. Monopolies in literary works are no longer viable. They were never ethical.

John R walker said...


That is just about the most anti innovation idea that I have heard in Years.

People might stake money for the labor of producing a pretty sure thing, but very few will risk advancing money for something that nobody has yet thought of.

And how exactly in this case would the market set the offering price for big innovations; a intrinsically unknown risky commodity, do you have a time machine?

The payment of copyright, over a fixed period of time, is the best market determined way of setting the price for the transfer of 'private ideas' to public ownership , things where the value is, at first issue, impossible to determine.

Do you also propose to rid us of the share market?

David said...

Sorry, Crosbie, it's late, so I will just quickly respond to one point. If 1,000 people receive a 'recording', they are, in plain and obvious fact, each receiving a COPY of a master recording. Are you disputing this, or are you trying to redefine 'copy'?

I will not respond again to your ramblings unless you give a plain answer to this question, because there is no point in trying to debate with someone who takes Humpty Dumpty's approach to the meaning of words.

Crosbie Fitch said...

David, the 1,000 fans are paying for the work+cost of the studio recording.

That this recording may subsequently be made available to each fan via BitTorrent does not mean they are paying for the copy they later download and not the recording. Once downloaded they can burn a million CDs and sell them if they want - in a free market (one in which the price of a CD copy is unlikely to rise above cost/convenience price).

NB Being made available via BitTorrent does not necessarily mean that it is available to others, but then each fan is at liberty to make it publicly available if they want to.

David said...

Please ignore my last comment. I really should have learned by now not to feed the troll. I will not be returning to this discussion.

Crosbie Fitch said...

John R Walker,

Anti-innovation? I'm all for innovation.

One doesn't have to advance money. One can simply make an offer, e.g. 10,000 people saying "I pledge $1,000 to reward those who find a cure for Leukaemia within the next 5 years". It's possible an advance to an escrow fund would be more attractive than a pledge assured by credit & reputation, but one has to balance participation vs incentive.

Yes, I know people prefer state granted monopolies such as copyright and patent. I'm describing how things can work without them, e.g. for those who are no longer confident that copyright is an effective business model.

I don't, but why would I propose to "rid us of the share market"?

John R walker said...

Cutting edge research is built on a willingness to fail as often as it takes to get it right.

Exactly how would those researching leukemia pay for 'food' until they arrive at the cure in five years time?

And If they some how??, made it through to the goal , would they have a legal contractual right (perhaps enforced by the state) to enforce the pledges?

Your system would pay the same value on thousands of mediocre childrens books as it pays on the next as yet unknown Harry Potter.

And as for "a pledge assured by credit & reputation" are you really that naive?

Crosbie Fitch said...

John R Walker,

Understanding the exchange of intellectual work for money as an ethically sound and sociologically superior business model to the commercial exploitation of a utilisation monopoly also takes some willingness, rather than contemptuous disparagement.

You will understand more readily if, like a 'cutting edge researcher', you at least entertain the possibility that it is possible to exchange intellectual work for money.

As for how researchers pay for food prior to discoveries or innovation I would remind you that even the patent office does not provide a subsistence income to those researchers hoping to file for a patent in a few years' time.

If there is a time-limited offer (5 years or 50) this is a known lump sum as opposed to the grant of a monopoly that may be exploited or sold for an unknown sum to those who could. I am not saying exchange is a more lucrative proposition. Indeed, I always concede that monopolies can be far more lucrative than a simple payment (exchange for money). I am simply saying that an exchange is the natural business model to which society can revert, when it finally realises that patents are far more costly to society in terms of commercial overhead and technological progress (despite patents being lucrative to monopolists and their lawyers). More people are realising this every day, e.g. Avram Piltch

The point of a pledge is that it is not contractually binding. It is an offer, and commitment assured only by the credit and reputation of the one making the pledge. However, there is similarly no contractual obligation on the part of the discoverer of the cure to publish it if the amount of money offered in exchange is insufficient. What ten thousand people pledging $1,000 each do is provide collective assurance that a reward of such magnitude will be available in exchange for the cure. Maybe 10% of them withdraw their pledge (at the expense of a loss in credit/reputation), however this still leaves 90% of the $10m on offer. And it is highly likely that as the pledge drive increases in popularity and signs of a cure become promising that more people will join the pledge, e.g. to double it to $20m or more.

A pledge is just a suggestion. A binding contract doesn't necessarily result in a larger fund. There are different dynamics involved when making bargains en masse. I'd also point out that variations that involve more staged rewards, where such are feasible, could also be advantageous for both sides.

Crosbie Fitch said...

As for paying for writing from mediocre/unpopular authors as from talented/popular authors, it's highly likely that more revenue could be obtained from a larger fan base than a smaller one, e.g. $1 x 10,000 fans, vs $10 from 100 fans. However, for excellent but esoteric and unpopular works on nuclear physics say, it's just as possible that an author can get large revenue from a small number of fans (nuclear physicists). There are mechanisms to enable the market to haggle the price - the author doesn't necessarily have to figure it out in advance. See The Digital Art Aucton. should give you some inkling that maybe, just maybe, exchanging intellectual work for money is a viable business model. Abolishing royal grants of monopolies, however many centuries it has taken for us to believe that innovation can only occur at the state's sacrifice of its citizens' individual liberty, does not bring mankind's technological progress to a halt. Far from it. Abolishing patent law takes the brakes off, restores mankind's liberty to utilise its own technology. The only ones unhappy are the ascendant monopolists, their lawyers, and the state in receipt of their kickbacks.

It is a parlous situation. However unlikely, if monopolies are not dissolved soon, the state will be. And I appreciate that it is unlikely ethical argument is enough. What is needed is a commercially viable alternative to patent. I realise that. That's why I've spent so many years working on the Contingency Market. I saw the writing on the wall over ten years ago. What I didn't see is that it would be so difficult for anyone else to see this even as the walls came crumbling down around them. Monopolies are ending. Free market exchange is the future (as it was the past), but free market exchange is anathema to those indoctrinated by monopoly.

As I said, it's a parlous situation.

AndyJ said...

@ Crosbie Fitch. As I understand it your model is based on conventional publishers, record companies etc being irrelevant and therefore disappearing from the stage. But just taking the music business as an example, there are many other players who will still be there: session musicians, producers, radio and TV stations who play the music, not to mention other artists who want to do cover versions of a song and who will in turn have their own retinue of performers, producers etc to whom royalties are currently paid. As described so far your model does not seem to address these issues.
For those unfamiliar with the current licensing situation this site provides a good overview.

Crosbie Fitch said...


The model I suggest isn't based upon the irrelevancy of monopolists, but upon the primordial model of 'work for money', i.e. as in art for money, money for art. It is the production of the art (aka intellectual work) that is the work, and that is what is exchanged for money.

Yes, anyone whose business model relies upon a monopoly to protect their ability to sell what costs $0 to produce, for $10, is going to have to find another business model when that monopoly becomes ineffective. I suggest it is already becoming ineffective and that the 'other business model' is the 'work for money' one.

Session musicians are already paid for their work - unless you're talking about those few who prefer royalties to cash. If an artist paid by their fans needs a session musician then they'll pay them themselves - covered by the payment from their fans.

In general, without a monopoly, people will be paid for their work (their service, their expertise, their talent, their skill, etc.). They will not be given a monopoly by the state and then have to find some monopolist interested in offering a good price for the monopoly. Nor will there thus be compulsory license fees and collection societies that disburse a fraction of what they collect back to artists.

Producers? Paid for their work in production.

Radio & TV stations? Paid by their subscribers for broadcasting programmes (not producing or selecting them). And yes, subscription is voluntary. NB With no copyright and DMCA propping up DRM, encryption is pointless. Programme selection aka DJing, is another form of work that is paid for directly by those interested in it, as is programme production.

Cover artists & retinue? Paid by their fans.

Songwriters? Paid by their fans.

The artist's customer base is to be found among their audience - no longer the monopolist publisher or record label.

'Work for money' doesn't mean you can do the work you want, and then demand to be paid for it. You still have a free market, and so must first find people interested in paying you what you want to do the work you want to do, that they also want done, i.e. 'fans'.

Without copyright artist and audience will not stare blankly at each other, refusing to produce any art, refusing to pay anything, refusing to do business. This only happens in the imaginations of those who cannot conceive of a world without copyright. But, as we know, despite demands that it not be permitted, copyright is dissolving...

AndyJ said...

@Crosbie Fitch. Either you've missed my point or I've missed yours.
As you know currently producers of sound recordings own the copyright in their recording and earn royalties from sales, airplay etc. If under your system they are paid a fixed fee up front by the artist then they are not receiving the same kind of benefit as the artist whose income (from subscribing fans) is open-ended. Are not producers using their artistic and technical skill much like the artist and therefore deserving of a similar renumeration model?
As you know much of an established artist's income is from PRS and PPL collected royalties. Are the businesses which currently pay these royalties in licence fees (shops, hotels, venues, TV amd radio stations etc) to be allowed to use the artists material for free? If so that is hardly equitable. You seem to be assuming that the majority of an artist's income is from direct record sales (which of course it may be for a very new artist, but not the larger established artists).
Perhaps once you have sorted out copyright you would like to sort out the City. I suggest that we, the public, pay bank staff what we think they are worth.

John R walker said...

"Third was to distinguish between consumers who copy for personal use and people who profit from illegally copying and selling content,"
If you can? do that, you would be a long way towards easing the fury. How technically possible is it ?

Crosbie Fitch said...


I'm just pointing out that, without a monopoly, people can instead be paid for their work/labour/product by those who want them to provide/produce it.

Yes, a monopoly can be far more lucrative than an equitable exchange, but then a monopoly is the antithesis of equitable exchange. The problem with copyright is that it still needs a powerful holder behind it to enforce/extort/exploit it. And even then, this colossal power is still dwarfed by civil disobedience aka endemic piracy.

Either you look at mankind's cultural exchange holistically, and recognise copyright's immense adminstrative and legal overheads, costs in lost opportunity, all to provide a few publishing corporations with immense profits (and the state with security), or you become fixated with some other alternative to a monopoly that results in similar profits. That other lucrative alternative is a mulct, a charge levied against everyone to be disbursed back to everyone (minus 99% in administrative, legal, and licensing overheads) in proportion to the prevalence of their work (a pretty lousy lottery: work for nothing, but if you're popular you might just be able to afford a new car). The problem with a mulct is that the economics are far too obviously iniquitous to those of a monopoly. Although, copyright supporters have been incredibly successful in hoodwinking the masses to believe it is a fair reward/of minimal cost to society, I very much doubt they'll get as far with a mulct.

I am not 'sorting out copyright'. I am explaining how commerce in intellectual work can and has to happen when copyright is ineffective, and even counter-productive.

An artist can either pay a publisher 99% of audience revenue for their services in producing, distributing, and retailing copies, and a collection society some similar fee for extorting other cultural uses of their work, or they can miss out the middlemen, utilise the free distribution/reproduction facility known as the Internet, enjoy free promotion by their fans, pubs, clubs, broadcasters, and get 100% of the revenue from those fans, audience collectives (cable TV companies), and others (advertisers) interested in commissioning more work.

But, the unpleasant truth, that copyright supporters keep evading, is that copyright is coming to an end. You do not have the option of retaining copyright. It is no longer a matter of winning an argument that the Sun orbits the Earth, and defeating those such as I who spout the heresy of heliocenticity. It is a matter of shifting paradigms, from the exploitation of a monopoly, to the disintermediated exchange of art for money, between artist and audience. The sooner we all shift paradigm from an 18th century anachronism to the reality of our information age, the sooner we can ramp up the development and effectiveness of online exchange facilities.