Limewire Seeking All The Recording Industry's Secrets
from the not-backing-down-easily dept
While Limewire lost its lawsuit in a big way to the record labels (as pretty much everyone expected), the ensuing legal fight has remained quite interesting. We've already covered the surprising move by the judge to try to explore the "real costs" of file sharing to determine damages, and in response, it looks like Limewire is trying to drag tons of other companies into the fight. Limewire is claiming that just relying on the recording industry's own documents concerning "costs" and royalties isn't enough. This makes sense, given RIAA accounting practices. However, its efforts to get others to jump in may be pretty difficult as well. A court has already rejected a request to subpoena MediaDefender, one of the industry's favored "anti-piracy" outfits, and another court is reviewing Limewire's request to compel Amazon to hand over royalty information. The indications are that it's also seeking (or will seek) similar info from Apple. While I doubt the courts will let Limewire go through with most of these subpoenas, if they do happen to get the info, we could see quite the airing of dirty laundry and details concerning various music licensing deals -- which is the last thing the RIAA wants to see happen.
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Filed Under: deals, recording industry, royalties
Companies: amazon, apple, limewire, mediadefender, riaa
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Hmmm
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Effectively, they could screw it up for everyone else.
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They can't. If they could have shown actual damages and not completely made up and bogus studies, they would have been screaming about them for 10 years. They would have with the Napster case, or Grokster, or in any of the 3 Jamie Thomas cases, or any of the others that have been in the courts.
They resist every effort because if the actual hard evidence is shown, everyone will know beyond any doubt that they've been outright lying. No amount of PR or shills on message boards will be able to dissuade that knowledge. Oh, and the bands and artists will have a field day on all the missing royalties.
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Though I suppose pirates themselves would get off pretty easy if they used that method. MSRP is 2-3 orders of magnitude less than they're getting sued for currently. Guess it's a better outcome for some than others.
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I suspect they will be allowed to bring forward a couple of redacted contracts that will show the general terms and conditions, the income flow, etc. That will be more than enough to prove the income that comes from each sale. Then you look at the number of downloads for a given file, and multiply dollars by downloads. That is the market size that has been lost.
Remember, none of this will be pure science. There is no simple way (without maybe doing lie detector tests) with each end downloader to see if they would have bought the album or not. However, it is clear that the music retail business had dropped dramatically, and that drop has been exactly in sync with increases in piracy. Further, it could be shown that popular songs that are heavily downloaded are popular, so it isn't the lack of desire for the product that has gone away.
The risks is that Limewire ends up helping the music industry prove that losses are huge, and that it requires only a single initial seeding of the file to get it started. That makes any person seeding the file a potential "first seeder", and possibly linked to every single download that happens.
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If you do this, you're assuming a one-to-one "substitution rate" - that is, that every single person who downloaded a file would have bought the album, but did not. Neither condition is even remotely close to being true.
That is exactly the wrong method of figuring damages. It was even debunked by the GAO. If the court allows this, they are incompetent. Luckily, I doubt they will.
FYI, when a substitution rate is even considered, the highest rate that I've come across is 10%. (It is probably a lot less.)
And, of course, in order to show overall damages, you must also show exactly how much file sharing acted as promotion. That is, how many people bought the album after downloading, who would not have bought it if they couldn't download it for free. That number is certainly not zero, and may in fact be over 10%. If it's greater than the substitution rate, the damages are zero.
This is a real possibility, since multiple independent studies have shown that pirates legally buy far more music than non-pirates.
However, it is clear that the music retail business had dropped dramatically, and that drop has been exactly in sync with increases in piracy.
Except that it has not. Digital music piracy has been around since the MP3 codec was standardized - in 1995. Yet from 1995-2000, the music industry made more profit than at any other point in its entire history. The peak in CD sales corresponds with the peak in Napster users. Furthermore, CD sales rebounded in 2004-2006 - without any corresponding drop in piracy rates.
There is no inverse relationship between digital music piracy and CD sales. There are, however, inverse relationships between CD sales and DVD or video game sales, and a positive relationship between CD sales and per capita income.
Further, it could be shown that popular songs that are heavily downloaded are popular, so it isn't the lack of desire for the product that has gone away.
That assumes the "product" is music in any format, and not plastic discs (CD's). If so, then piracy absolutely has no effect, since more music purchases were made in 2009 than in any other year in history. (The RIAA's problem is that those purchases were mostly digital; CD sales fell another 12.7%.)
But the RIAA doesn't figure losses through overall sales, but as "lost income." They either: 1. blame all of their economic losses on piracy; or 2. calculate their losses using the MSRP of a CD.
The risks is that Limewire ends up helping the music industry prove that losses are huge, and that it requires only a single initial seeding of the file to get it started.
I very much doubt that. The only way this could happen is if the judge simply ignores the evidence - and the fact that he actually asked for evidence means this isn't likely.
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There is no simple way (without maybe doing lie detector tests) with each end downloader to see if they would have bought the album or not.
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I did read it. I'm just pointing out that AC's guess has to be completely wrong - even if it is just a guess.
It's like if a guy (who we'll call Martin) said, "I'm just guessing, but I think there are only about 6000 stars in the universe, because that's how many are visible to the naked eye." It doesn't matter if it's just a guess - it's wrong, because the method Martin used to make his guess is wrong.
If you use AC's method of calculating damages, you'll come up with a figure that is at least ten times higher than it should be. That's not a "guess," it's a fabrication.
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The missing part is general market penetration. As an example, if 10% of all people in a given market use to buy music on CD, and now only 5% of them do, and 1% buy online, that leaves 4% of the market "missing". That could as an example give an idea of what was lost.
Another way is to consider what the typical uptake is in a given country. Historical numbers will show what the uptake rate was for artists for a 10 year period, 1991-2000 and then from 2000-2009. If you buy rate was 1 in 10,000 before, and now is 1 in 40,000, you have a significant gap. It could be shown (based on these made up numbers, don't beat me on the head, just trying to show an example) that 75% of sales were lost over that time period. This wouldn't be on a single album, but rather over a much larger sample (and longer terms).
After that, assigning monetary losses is relatively easy. Gross, net to each party, number of "lost" unit sales, put it all together, and you have an end result number.
For a company like Limewire, which has it's fingers in tens of millions of pirated copies, the losses, even when discounted, percentages, and so on, are still astronomical.
It is why I think they are a horrible case to take in front of a judge to try to establish value. If anything, they really do risk establishing a number so high, that the risks of piracy will be "the max allowed by law" at every turn.
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So, you're suggesting that these methods, though completely unsound, are going to be used by the judge?
I think you're wrong, because that's not what the judge asked for. Both parties pick individual works, and estimate the specific losses for those works. And the judge explicitly rejected the "gross revenue" value of these works.
Any absolute solution to this issue would require that each and every downloader be interviewed, tested, and checked.
There are many ways to estimate substitution rates and "promotional rates" without having to interview every single person on the planet. Several studies have already done so. Those estimates may not be completely accurate, but they are better than nothing. And if you ignore those rates, that's all your guess is worth - nothing.
The missing part is general market penetration. [...] Another way is to consider what the typical uptake is in a given country. [...] After that, assigning monetary losses is relatively easy.
Except that's not true. If you even attempt to calculate damages this way, you'll be doing exactly what you shouldn't: claiming that the downturn in recorded music sales is due entirely to piracy and piracy alone. Since this cannot possibly be true, both these methods are completely worthless for determining economic damages.
And, again, neither method will tell you how piracy effected "Yeah!" by Usher.
It is why I think they are a horrible case to take in front of a judge to try to establish value.
Well, there's gotta be a first for everything. I'm a bit surprised no judge has actually asked for proof before.
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@Karl - the rate is closer to 1.73% max. You have to take out the entirety of repeat sales, media upgrades (vinyl-8track-cassette-CD-mp3) and replacements (damage and wear). You have to factor in singles as opposed to ablums, 5 million bands giving away and selling music online (as opposed to 10,000 bands during the labels golden age), free streaming services, online radio stations.
On top of that you have to factor in new competition for peoples time. Gaming, blogging, browsing, texting, social media (facebook, etc), e-mail, etc, all come into play here to compete for peoples time.
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@Karl - the rate is closer to 1.73% max.
That's possible. The high, 10% number was a "conservative" estimate cited by the International Chamber of Commerce, in a study which is questionable to say the least.
As I Googled this, I also ran across a study by the IPI (PDF) that claims it's 20%. Where do they get that figure? From a study by Pietz and Walbroeck (PDF)... using data from 2002, which even the authors claim is "only a crude estimate." They also say that "other factors than music downloads on file-sharing networks are likely to be responsible for the decline in music sales in 2003," something the industry doesn't mention at all.
The labels also don't mention a later (2006) paper by those same researchers, which concluded: "Do music labels necessarily suffer from downloading on P2P networks? Our analysis shows that the answer is 'no'. In our model, profits increase for a certain set of parameters because consumers can make more informed purchasing decisions because of sampling and are willing to spend for the original although they could consume the download for free." That paper is not unline, ironically, but you can buy it from ScienceDirect if you really want to.
...Actually, that's a case study right there. You are prevented from reading that paper unless you pay for it. Are you going to pay for it now? No. You're just not going to read it. If all of you could pirate that paper right now, that still doesn't mean you would have bought it. The "substitution rate" would be zero.
Incidentally, I didn't buy the paper either; I got the quote from this summary on Music Business Research. If I couldn't have gotten the quote for free, I wouldn't have used it... or even known about it.
Based on this one representative sample, I can therefore deduce that the "substitution rate" is exactly zero. Hey, it's as least as scientific as the studies the RIAA puts out.
You have to take out the entirety of repeat sales [...etc]
These things all have an effect on music purchases, that's true. But that's only relevant if someone is claiming that the downturn in recorded music is entirely due to piracy. If they're going to do that, I'm betting they're not going to mention "substitution rates" at all - since they're not being scientific, they're just looking for a scapegoat.
Concerning the economic damage due to piracy alone, the "substitution rate" is a very specific number: the number of people who would have paid for music, but decided not to, solely because they could pirate it. Any other cases should be completely disregarded, because they're not "lost sales."
And to compute actual damages, that rate must be subtracted from the "promotional rate" (a term I'm using because I don't know of an official one), which is the number of people who would not have paid for music, but did in fact pay for it, solely because of piracy. (Either they liked it and paid for it later, or liked it and decided to pay for similar music, rather than a DVD or video game or whatever.) The "promotional rate" is not trivial - think about how much more music sells when it's played on the radio. It is probably why people who pirate music make far more legal purchases than people who do not.
Neither number is zero. But until we can accurately estimate both rates, the numbers we come up with will be utterly meaningless. I personally believe there are some losses from piracy, but not very much. Far less, for example, than the RIAA spent on lobbying last year.
On top of that you have to factor in new competition for peoples time.
Possibly, but if that's the case, the amount of pirated music would be reduced as well. Again, not really apropos for a discussion of damages.
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Gee all the RIAA legal team need is your private research!
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1/10
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1/10"
Actually a better one would have been ...
I understand a you are about to loose your home at 1025 F ST N.W., 10th Floor, Washington, D.C. 20004. There is this small place under a cute little wooden bridge in the park a couple blocks away.
I'm on a horse ... I hope this rickety wooden bridge holds out.
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They may have lost on the main issue but it still makes sense to limit the damages as much as they can - someone is going to have to pay them (or some proportion of them). There is a lot of money at stake no one in their right mind would not try and reduce their losses as much as possible.
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Excellent point. So, why haven't media organizations tried setting up legitimate, legal alternatives to piracy? Sure, some third parties have but the actual media organizations? Not so much. They've in fact resisted every attempt to make content legally available across the Internet and done their best to cripple said content when it couldn't be avoided.
There's probably a fair argument to be made that they're inducing infringement themselves.
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sadly the path to the dark side in lawyer-y is very short and down hill
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