[A2k] NL study on p2p - English translation

[Anne-Catherine Lorrain]

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[ Picked text/plain from multipart/alternative ]
 The English translation of the Dutch Ministry for Economics / SEO / IViR
study on the economic and cultural effects of file-sharing on music, films
and games has just been released.

This study tries to provide =91objective=92 figures and analysis.

It is available on the IViR=92s
website<http://www.ivir.nl/publicaties/vaneijk/Ups_And_Downs_authorised_tra=
nslation.pdf>(see
also attached document).

(see the executive summary below. Sorry for the bad formatting of the cut &
paste)


*Management Summary*

The main aim of this study is to identify the short- and long-term economic
and cultural

effects of file sharing on music, films and games. File sharing is the
catch-all term for

uploading and downloading. The short-term implications examined include the
direct

costs and benefits to society at large. In order to determine the long-term
impact, we

analyse changes in the industry=92s business models as well as in cultural
diversity and

the accessibility of content.

The study draws on existing sources of information to describe the structur=
e
and

operation of the film, games and music industries and discusses the most
important

changes in their business models. Digitisation has played a central role in
this process.

The trends and developments are subsequently analysed from a legal
perspective, with a

primary focus on copyright aspects. The empirical reality of file sharing i=
s
described

using data collected during interviews with heavy file sharers as well as
data from a

representative survey of 1,500 internet users in the Netherlands. Other
sources include

interviews with people working in one of the three entertainment industries
and, where

none were available, with industry representatives. Note that this part of
the study is by

no means a consultation of all parties concerned. The research findings are
subsequently

placed in a broader perspective using comparable scientific studies carried
out in other

parts of the world. This has enabled us to fill in the missing pieces and t=
o
take a closer

look at the impact of file sharing on the paid consumption of music, films
and games.

The research shows that the economic implications of file sharing for
welfare in the

Netherlands are strongly positive in the short and long terms. File sharing
provides

consumers with access to a broad range of cultural products, which typicall=
y
raises

welfare. Conversely, the practice is believed to result in a decline in
sales of CDs,

DVDs and games.

Determining the impact of unlicensed downloading on the purchase of paid
content is a

tricky exercise. In the music industry, one track downloaded does not imply
one less

track sold. Many music sharers would not buy as many CDs at today=92s price=
s
if

downloading were no longer possible, either because they cannot afford it o=
r
because

they have other budgetary priorities: they lack purchasing power. At the
same time, we

see that many people download tracks to get to know new music (sampling) an=
d

eventually buy the CD if they like it. To the extent that file sharing does
result in a

decline in sales (substitution), it usually entails a transfer of welfare
from producers to

consumers. With estimated welfare gains accruing to consumers totalling
around =80200

million a year in the Netherlands, music producers and publishers suffer
turnover losses

of at most =80100 million a year. These calculations are necessarily based =
on
several

assumptions and contain uncertainties as many of the underlying data are no=
t
precisely

known. Whereas comparable figures cannot be provided for the film and games

industries, they follow a similar logic.

Estimates of the volume of global unauthorised download traffic vary
strongly, but all

signs are that this involves many billions of files per year, constituting =
a
substantial

share of international internet traffic. The number of file sharers in the
Netherlands is

relatively high, which can be explained by the early introduction of
broadband in the

country and its high penetration. Music is by far the most frequently
downloaded

product. Based on a compilation of different sources, the number of music
downloads in

the Netherlands can be estimated at between 1.5 and 2 billion per year,
which would

amount to 7.5 downloads for each track sold. That said, not all downloaded
tracks are

TNO-rapport | Ups and downs

actually listened to as consumers tend to download a great deal more music
than they

listen to.

File sharing is a widespread phenomenon, with around 4.7 million Dutch
internet users

aged over 15 years having, over the past 12 months, engaged in downloading
without

paying on one or more occasions. Generally, file sharing and buying go hand
in hand.

Consumers who download tend to be aficionados of music, films or games,
which

therefore play an important role in their daily lives. Among music and film

downloaders, the percentage of buyers is just as high as among
non-downloaders;

among game sharers, the percentage of buyers is even higher than among
people who

do not download games. In addition, music downloaders have been found to go
to

concerts more and to buy more merchandise. Game sharers buy more games a
year than

gamers who do not download and film sharers tend to buy more DVDs on averag=
e
than

do non- file sharers. Most file sharers say they would not change their
buying habits if

downloading were no longer possible.

Legal framework

Downloading copyrighted content from file-sharing networks, websites and
other

sources for one=92s own use is permitted by law in the Netherlands. Games =
=96
being

computer programs =96 are an exception to this as they enjoy wider protecti=
on.
In the case

of peer-to-peer (P2P) networks, content is not only often downloaded by
users but also

made available again to others, usually automatically, in which case the
user is both

consumer and supplier. This file sharing is a more or less intrinsic elemen=
t
of P2P

networks. The uploading of files, whether automated or otherwise, without
the prior

consent of the right holders is a copyright infringement and may result in
both civil and

criminal liability. For the purposes of enforcement, intentionally
infringing copyright in

the course of a business or occupation is an aggravating circumstance.

Measures to combat the variety of practices encompassed by the term =91file
sharing=92 in

the Netherlands and Europe focus primarily on the uploading side. The law
provides

right holders with a range of means of enforcement under civil law. Recent
policy

developments indicate that criminal enforcement measures focus in particula=
r
on

uploading on a commercial and/or large scale. There is reluctance among
policymakers

at not only national but also European level to =91criminalise=92 individua=
l end
users.

Aspects of public interest are at issue in this connection (promoting legal
delivery,

proportionality, expediency, legal certainty, etc.). The possible role of
intermediaries,

both individuals and organisations, such as Internet Service Providers,
hosting providers

and (other) parties involved in P2P traffic, is increasingly a topic of
debate. They could

play a part in identifying and combating the unauthorised delivery of
content.

File sharing and the entertainment industry

The impact of digitisation on the various sectors of the entertainment
industry is

substantial. Traditional business models used by distributors in each of
these sectors and

most other actors upstream in the value chain (producers and creators) are
based on the

controlled access to the products created, in this case films, games and
music

(recordings). Copyright gives them control over the use and marketing of
their products,

for which they may charge consumers. The practice of file sharing, however,
is making

it increasingly difficult for them to maintain control over their works,
with the risk of

eroding their commercial foundations. Timely response to these changes is o=
f
the

TNO-rapport | Ups and downs

essence in order to safeguard their position. In some cases this will
necessarily entail a

redefinition of business models.

The music industry finds itself up against a shrinking market for its
products and the

ubiquitous problem of file sharing. It may well be that at least part of
turnover loss

directly reflects this sharing of digital music files, via P2P networks
among other routes.

The industry=92s defensive strategy has not succeeded in stemming the swell=
ing
tide of

music sharing and has failed to come up with an early answer to today=92s n=
ew
digital

reality. And so it has seen other players, such as Apple, claim key market
positions in

marketing and delivering digital music files. Charging for digital download=
s
has so far

not provided a definitive solution to the slide in sales. As the new market
is now unable

to compensate the industry=92s decline, business model reinvention is more
urgent than

ever. The fact that the total market for audio formats (physical and
downloads taken

together) is shrinking faster than Dutch record companies=92 total turnover
suggests that

the record labels have found new sources of revenue. This is in line with
the industry=92s

all-out efforts to tap new income sources. For established artists, new
marketing and

income-generating models are being developed where income is generated not
so much

directly by music recordings, but increasingly by live concerts,
merchandising and

sponsorship, which in turn are being secured by the industry with the aid o=
f
360-degree

contracts. Determining the extent to which these sources of income make goo=
d
the

losses in the market for audio formats is difficult on the basis of the
information

publicly available. That said, the new models still cater for music
recordings but show

that in the future the industry is not likely to be able to survive
profitably on music

recordings alone.

A different picture emerges for the film industry, which is still enjoying
growth in a

number of markets: cinema visits and DVD sales. By contrast, DVD rentals
have

slumped. This favourable trend compared with the record industry may reflec=
t
the fact

that film sharing has not taken off on as large a scale as music sharing. I=
f
this is indeed

the reason, increasing broadband penetration might eventually also cause
this industry

to record less growth or even to shrink. The urgency the music industry
feels to reinvent

its business model might then also take hold in the film industry. Films ar=
e
also at a

disadvantage in that it is not in the nature of film consumption for many
viewers to

quickly want to see the same film again. Free downloading is therefore more
likely to

result in substitution here than in the music business. And as the role of
file sharing to

get to know a product, which downloaders may subsequently buy, is less
applicable to

films, the industry should not allow itself to be lulled into a sense of
complacency by

still-increasing turnovers.

The games industry is a different story yet again. This business is showing
exuberant

growth, particularly at the console games and related hardware end, and the
spectre of

file sharing looms much less large in console games than in PC games, where
turnover

is now flat. The specific platform-restricted hardware-software-content
marriage makes

the official game release so attractive =96 compared with a music CD =96 th=
at
this industry

might well be able to better prevent or sidestep the file sharing that
besets the music

business. The hardware-software-content combine also gives large producers
and

distributors in the industry more scope to ensure profitable operations.
These

opportunities are sorely lacking in the music and film industries. Another
advantage of

the games industry is that concept design and product innovation are much
more

embedded in the gaming culture than in the music and film industries, in
particular now

that it is increasingly capitalising on the opportunities offered by the
Web. From this

vantage point it is less complex for the games industry to innovate, if nee=
d
be by joining

forces with the music industry as it is now doing in music games. Boasting
such a

TNO-rapport | Ups and downs

strategic advantage, it should not come as a surprise if the games industry
ends up the

winner in the battle for young consumers=92 spending money. This would seem=
 to
lie

ahead given current trends in the joint film, music and games markets.
Whereas the size

of the entertainment market as a whole is relatively constant, the share of
music is

declining gradually and the share of games is showing explosive growth.





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Anne-Catherine Lorrain

Intellectual Property Policy Expert

The* **TransAtlantic Consumer Dialogue* (TACD)

80, rue d'Arlon, 1040 Bruxelles, Belgium

aclorrain@consint.org

Mob (Belgium): +32 473 99 97 92

Tel: +32 2 740 28 17, Fax: +32 2 740 28 02
www.tacd.org

www.tacd-ip.org/blog
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