September 6, 2004
Volume 6, Issue 1
The P2P Revenue Engine Solution
Rather than arguing legal precedent and citing case law, the DCIA provided input to the Office of Copyright and Senate Judiciary staff last week to support our recommendations regarding S. 2560 (The INDUCE Act) in the form of a market update.
We envision the following solution: consumers continue to copy entertainment content from CDs and DVDs for use on their PCs and portable players; they also continue to place such files in their P2P published file-directories or shared folders, but without risking infringement.
When another user selects one of these files, as the uploading process commences, a new standalone program or P2P client plug-in or fully integrated application automatically matches that file against a rights-holder registry and either replaces it for quality reasons with an authorized substitute, or applies rights-holder stipulated digital rights management (DRM) technology, before the file is downloaded by the next user.
Users may also automatically register their own original works for such P2P "super-distribution," and be compensated with a share of advertising and/or content sales revenue.
Part of this solution is already in place. DCIA Members Altnet, INTENT MediaWorks, Shared Media Licensing, and Trymedia Systems, have become the largest distributors of licensed content on the Internet by working through such P2P software providers as fellow DCIA Members Sharman Networks (Kazaa) and Grokster. With more than 50 million licensed transactions per month, they conduct an order of magnitude more business than the music-industry-supported online centralized download stores like iTunes.
These and other entities have aptly demonstrated that DRM-protected content can be securely redistributed via P2P, and that consumers will select and purchase it.
Independent labels and bands are rapidly gaining market share and more-and-more emerging artists are able to make a living in their chosen profession by distributing through P2P, which they could not have done under the closed major label system. P2P is liberating to both audiences and artists versus traditional radio play and CD retail with their relatively limited inventory.
The rest of the solution is now being developed. Companies like DCIA Member Relatable, which performed acoustical fingerprinting for the original Napster, identifying 300 million copies of 13 million music tracks at the height of its traffic, and MediaGuide, which currently maintains a global rights database for several million tracks on behalf of music composers and publishers, have teamed with eight other companies in the DCIA-facilitated P2P Revenue Engine (P2PRE) project to conduct proof-of-concept testing for identification of consumer-entered P2P content.
Other companies like AlmondNet, Peppercoin, and DCIA Members Clickshare Service, Digital Containers, and P2P Cash are engaged in development of advanced P2P DRM, tracking, and payment-processing services that will make it possible for content rights holders to offer a given title simultaneously as a low-bit-rate ad-supported promotional version, opt-in recurring subscription offering with other like-genre content, and an a-la-carte sale. Rights holders will determine and be able to quickly and easily change pricing, packaging, and usage parameters.
Report from CEO Marty Lafferty
 In its unanimous decision in favor of DCIA Member Grokster, the Ninth Circuit Court referenced historical entertainment industry reaction to new distribution channels – from piano-rolls to VCRs. It pointed to a pattern typified by initial denial, followed by eventual adoption, and ultimately resurgent revenue growth.
A relevant case study is satellite television. If there was ever an example of inducing infringement, it was the first home TVRO (television receive only) satellite tuners and antennas, or backyard dishes, whose original sales premise was, "Get Cable TV Free Forever."
At their height of sales during the 1985 holiday season, some 750,000 of these 9-to-10 ft. diameter "garden sculptures," priced between $5K and $10K, were sold monthly. The cable television industry, relying as much on subscription as advertising revenue, had to respond to this threat.
Leading cable programmers, in many cases the same content rights-holders now pressuring Congress to act against P2P, demanded that satellite equipment manufacturing be outlawed, satellite dealers be put out of business, and home-satellite viewers be fined and have their TVRO systems confiscated.
Had S. 2560 been enacted at the time, that may have happened. The questions are: 1) Would the programmers have been better off reverting to telco signal delivery to cable head-ends and having only cable franchises distribute their programs to subscribers; and 2) Would consumers and the economy be better off with only hardwire monopoly cable distribution for subscription television – and no alternatives such as those that evolved into DirecTV and DISH Network?
The situation then was similar to where we are now. Despite admonitions from senior industry technologists that scrambling of then analog television signals with digital-encryption technology was "impossible and would never, ever work," here's what happened.
Entrepreneurial technology firms like General Instrument and M/A-Com teamed to develop VideoCypher technology that enabled TV programmers to scramble their signals before up-linking, and then unscramble them, restored to broadcast quality, at cable head-ends.
Cable programming firms argued that to offset the costs of scrambling, and to develop an ancillary market, this technology also had to work with consumer set-top boxes. Equipment manufacturers like Houston Tracker and Scientific Atlanta licensed VideoCypher technology and offered competitive hardware solutions.
Payment processing firms like CableTek and First Data Resources (FDR) developed billing solutions for the new subscription satellite television market. And call centers like Netlink and Time-TeleMarketing developed expertise in handling orders from home-satellite viewers.
By the next Thanksgiving, the very new satellite television subscription market outperformed cable, in terms of percent penetration, for the WWF pay-per-view (PPV) event Starrcade '87.
Alternatives to S. 2560 The INDUCE Act
The DCIA believes that business and technical solutions should be encouraged in the private sector, and that a request for any necessary enabling legislation should come only as a last resort and only based on a consensus among affected parties, in this case primarily content rights holders and P2P software providers, but also closely related telecommunications and technology firms, once traction for a particular solution has clearly been established.
S. 2560 is certainly not that; it is a license for one party to sue the other and it is hard to see how that will ultimately benefit anyone. Global decentralization of the Internet has reached the point that it would be virtually impossible to stop the proliferation of P2P file-sharing technology or prevent its continuing evolution to higher levels of efficiency.
Cynics have even said that trial lawyers would somehow twist this measure's intent and litigate the thousands-of-times richer entertainment conglomerates, arguing that their failure to copy-protect their content is what has actually induced copyright infringement.
In any case, the DCIA did provide an alternative proposal, albeit one that we believe is premature, because it does not yet represent a consensus of major entertainment content rights aggregators, file-sharing software suppliers, telecommunications firms, and technology companies.
It's called The Peer-to-Peer Distribution of Copyrighted Works Development Act, and we would be glad to share an outline with interested parties. Please contact marty@dcia.info.
In the meantime, as the Senate Judiciary and Office of Copyright review their options with respect to S. 2560, our strongest recommendation is that their focus shift away from promoting equally premature, and we believe very misguided legislation, to gathering relevant market facts.
The entire impetus for the INDUCE Act was based in large part on misinformation. It's a time for gathering accurate data rather than acting rashly in response to pressure from a special interest group.
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