The Music Process – Between New Business Models And Lawsuits

By Pedro Paranaguá.

The traditional business model of the phonographic industry is being left behind by the competitiveness of new technologies. The technological world is evolving, but some businesses are struggling as they are not adapting themselves to the ever-increasing changes. Trying not to be left behind, the phonographic industry has preferred to use the marketing of fear: file lawsuits against file-sharing users.

On 17 October at Copacabana Palace in Rio de Janeiro, a public announcement was jointly held by the London-based International Federation of the Phonographic Industry (IFPI), which “represents the recording industry worldwide with over 1,450 members in 75 countries,” together with the Brazilian Association of Disc Producers (ABPD in the Brazilian Portuguese acronym). IFPI’s Chairman and CEO, John Kennedy, announced that, for the first time, 20 Brazilians that have uploaded and made available around 3,000-5,000 files for others to freely download via peer-to-peer (P2P) file-sharing software will be sued.

Interestingly enough, three law professors, including me, from the Centre for Technology and Society (CTS) of Fundacao Getulio Vargas (FGV) School of Law in Rio de Janeiro, were barred from the meeting despite having previously had our accreditation accepted by the organisation of the event. We were told that the room could fit only 40 persons but they already had around 50 inside it. When asked if we could have access and keep standing, we were told that there was no room space even for standing. However, after talking to journalists from TV Globo (the major broadcaster in Brazil), TV SBT, O Estado de Sao Paulo, Reuters, Associated Press, and Folha de Sao Paulo amongst others, who were leaving the room, we were told that it was not full and that there were places available, indeed.

Our intent, as academics, was to simply be informed of this new policy that the phonographic industry is now implementing in Brazil, and if at all possible to ask questions, just like the journalists did. But we were barred, and while we were waiting for someone coming out of the event room to tell us the news, the security men hired by the event made sure we were not doing “anything wrong” at the adjacent lounge of the hotel.

Accordingly, FGV’s Centre for Technology and Society, under its Access to Knowledge (A2K) programme, has prepared a document clarifying how restrictive the Brazilian copyright law is and how new technologies are being threatened by traditional business models, to further support an amendment to the Brazilian copyright law in order to bring a balance to the discussion. To date more than 8,000 persons signed the online petition to be sent to the Brazilian National Congress, supporting the proposal originally made by the Brazilian Intellectual Property Association (ABPI). The major communication channels in Brazil, including radio, TV, newspapers and magazines, have widely published on the issue, many of them heavily criticising IFPI’s measures.

Since then, FGV Centre for Technology and Society’s petition has officially received wide support from various institutions in the world, such as: USA’s IP Justice and Free Culture, France’s Association des Audionautes, Chile’s Derechos Digitales, Europe’s iRights, Peru’s CPSR-Perú, India’s Alternative Law Forum, and Brazil’s Intervozes, Information Network for the Third Sector (RITS), Brazilian Institute of Consumer Defense (IDEC), and Free Software Project Brasil (PSL-Brasil), the largest free software community in Brazil.

Rethinking the model

But what is important in all these discussions, and why we all should care about it? To name only a few, we are talking about the right to privacy; the right to, as a consumer, be clearly and correctly informed about the product; and the right to enter the market and the right of free competition. All these rights are either guaranteed by the Brazilian Constitution – just like several other countries’ constitutions – or by national legislation.

Let’s try to imagine a world without digital audio and video recorders, like CD and DVD burners, MP3 players and so on. Let’s imagine we are not allowed to record our favourite soap opera or TV show to watch it when we arrive home after work – “time shifting.” Had a famous 1984 US Supreme Court decision been different, today people in the United States, and perhaps in the whole world, would not be allowed to take such actions. None of the digital audio and video recorders today available, ranging from computers, music players, CD and DVD recorders, would (legally) be in the market. Not even our mobile phones would be allowed to record videos or sounds. None of the great advances made possible by these technologies would be legally allowed.

That was the first time we saw a definitely strong attempt by the content industry to prevent the technology industry from developing, under the argument that their technological inventions were causing or could cause enormous profit loss to the content/entertainment industry and the authors they “represent.”

Ironically, the content industry later learned that they could profit a lot by renting videotapes (now DVDs) to be played at the video recorders/players (VCRs) that they tried to ban. Another interesting fact is to see sometimes the same corporation profiting from both produts: content and technology, as is the case of Sony/Sony BMG.

Today, digital technology has made things much easier. The quality of a copy is relatively high, the costs for copying it tends to zero, it is definitely quite easy to make a copy, and the distribution of the work through the Internet is also quite simple and effective. Thus, consumers do not necessarily need intermediaries anymore, and they themselves are able to make their own high quality copies and also distribute and share them with others via peer-to-peer file sharing software. They can even create their own work, and make them available on the net. YouTube, MySpace and Overmundo are just three of the effective tools for sharing information and sometimes even creating your own work.

In Brazil, the price of music CDs are around US$14, varying 30 percent up or down, or around 10 percent of the Brazilian minimum wage per month! The price of a single digital song, bought on one of the only three legal online music stores in Brazil is around US$1, exactly the same price found in the US or in the European market. The gross domestic product (GDP) at purchasing power parity (PPP) per capita of these regions, as calculated by the World Bank and the International Monetary Fund in 2005, is widely distant: US$41,399 (USA), around US$30,000 (main European Union countries), and US$8,561 (Brazil), which means that, in real terms, the same song in Brazil costs almost 5 times more than in the US or 3.5 times more than in the EU. Definitely, the price of legal music in Brazil is way above the average local purchasing power.

While having this information, we know that the phonographic industry tripled its profits to US$1.1 billion from 2004 to 2005 with the sale of online music.

But that is not all. In Brazil, if one wants to legally download a song, she or he must be using Microsoft’s Windows proprietary operating system, once all of the three currently available online music stores run the WMA/DRM technological lock, which is not interoperable with Apple’s iPod, or with Apple’s operating system, or with any free software GNU/Linux distribution. All Linux users, thus, are encouraged to illegally download music, unless they patiently wait for a businesses to develop a system that runs with free software. Or everyone must also pay for a Windows license.

Preventing the evolution of new technologies may hinder the development of humanity. While even artists are against such bans and lawsuits, the courts should not prohibit “… socially admitted and widely practised behaviour where the aim is not to gain wealth illegally but to obtain private copies” as recently stated by a Spanish Judge on a case on P2P file sharing.

Why not, then, have a system that brings balance to the issue? The owners (normally corporations) have their rights, but what about the artists, the creators? What about the public at large, the consumers? And what about the differences of social classes? And more importantly, the right to access to knowledge, culture and information? The right to compete, to enter the market?

Why not, for instance, have a system with no digital lock at all – like DRMs/TPMs – so that no fair use in the broad sense of the term is prevented? TPMs, technological protection measures, just penalise fair players, the ones that are paying for it. The ones that want to earn money with illegal copies will continue to do so. Even inexperienced hackers know how to break the recently launched technological locks, and no legal text or lawsuit will prevent them from doing so. This will unfairly spread fear amongst the industry’s own consumers.

Likewise, why not allow for unlimited downloads on a monthly payment of, let’s say, US$2 in Brazil, and US$8 in the US, Europe and Japan? Being tremendously pessimistic, if only 1 percent of the Brazilian population or instead, 10 percent of the Brazilians that currently have Internet connection pay US$2 per month to have the right to unlimited downloads, then the phonographic industry would profit around US$4.4 million in either case. Should these figures be reasonably increased by 10 times, then we would have a profit of US$44 million. This is of course much less than the US$286 million announced for 2005 [.pdf], but again, that does not take into account the potential increase in the number of Brazilians with Internet access, nor any kind of associated value or service with the songs. Nor the elimination of the cost of the CD, and of its physical distribution. Nor the possibility of increasing profits once the recording industry may operate on a business-to-consumer (B2C) basis, thus eliminating intermediaries, and also getting to know better its consumers, for being closer to them. This also is not a definite proposal, just a spark for promoting the discussion towards a balanced system.

Like Marcelo Yuka, a famous Brazilian composer and musician, said at the “Music Process: between new business models and law suits” seminar organised by FGV on the 9th of November, “the discussion is not only within economic basis. It is time to bring the discussion within a human basis. … When dealing with intellectual property we are renegotiating my life not as an artist, but rather as a citizen. … It is crucial that the human aspect be the core of the discussion: I am a commons good, I create the national identity. I and all the other artists are intrinsic goods of the country just like petrol is.”

Pedro Paranaguá is professor of law at the Fundacao Getulio Vargas (FGV) School of Law in Rio de Janeiro, and researcher at FGV’s Centre for Technology and Society, where he coordinates the A2K programme. He earned his LL.M. in intellectual property from the University of London, Queen Mary, represents FGV Rio School of Law at the World Intellectual Property Organization (WIPO), is an invited lecturer at the Brazilian Patent and Trademark Office (INPI), Federal University of Rio de Janeiro (UFRJ), Rio de Janeiro State University (UERJ), and FGV Sao Paulo School of Law. Before joining the academic field, he worked for a couple of years as a lawyer at a Brazilian IP law firm, then led research at a non-governmental organisation focused on access to medicines. Currently he is also legal consultant for the Brazilian Ministry of Culture, and has spoken on several national and international events on IP and sustainable development, and access to knowledge.