Digital Britain Report: What it Means for Music Companies

Mark Mulligan[Posted by Mark Mulligan]

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<p><p><p>Digital Britain - The Interim Report</p></p></p> <p></p>

The much
awaited
UK government’s interim Digital Britain report was published today.  You can download the report here. It covers
ambitiously broad ground which I’m sure my colleagues will address. See Nick Thomas
take here. I’m going to focus on the digital content aspects and what they mean
for music companies.

 

The overriding impression is that this is a highly
nuanced document, with carefully chosen language. But hidden in cautious
verbiage are some incredibly significant statements that form a forceful
subtext, and not one that will have record labels singing in the aisles. Particularly as this comes hot on the heels
of The Intellectual Property Minister comparing file sharing to stealing soap
from hotel rooms
.

 

The other key theme I see in this report is the push
for digital content to be subscription based and for that subscription to be
part of an access subscription, perhaps even including legitimized file
sharing. Though the report carefully
avoids making those recommendations directly, it builds the case in a
persistent and measured fashion as you’ll see below. Those caveats aside, there are also some encouraging,
forward looking and brave positions taken.

 

Here follow what I think are the key elements of the
text and what they mean (for sake of semi-brevity, this is not an exhaustive
list):

 

“Firstly, if digital distribution
and copying costs are lower so too are digital revenues from the product or the
advertising impact; often, in current business models, an order of magnitude
lower. The role for regulation or intervention is not to prevent the emergence
of new business models or to preserve old and
unsustainable ones.”

 

This is a double whammy for the music business. First it makes a clear statement of principle
that digital product should be cheaper because costs are lower. This ignores a) the fact that it still costs
the same to develop, record and market an artist b) other value chain members
impact margins. Yes, labels could charge
less for digital licenses, but the cost of being a music company is only
impacted so far by the distribution channel. The second blow is the clear statement that old business models should
not be supported (i.e. the CD). Unfortunately
CDs will still be the bedrock of music sales even 5 years from now, so that’s a
pretty worrying scenario for the labels: the government won’t be supporting
your core business anymore.

 

“Ad supported models
will intensify the sense that content is free”

 

The report argues that it is imperative that
consumers pay for content to avoid the perception that content should be
free. It also implies that ad supported models will only intensify this free perception. So just as the labels are licensing to
innovative ad supported solutions such as Qtrax, Last.FM and imeem, the
government appears to be saying telling them to cease and desist.

 

“…the UK needs to
consider whether there are other funding streams or mechanisms that would
substitute in whole or in part.”

 

Following on from discrediting ad supported
services and, by implication extant services, this narrows available options to building the case for a bundled subscription or levy. If a levy, who gets to be part of it? All media sectors? Or do some get excluded? And for those included how does the income
get split? By size of revenue, by how
much revenue has declined? By volume of
files shared?

 

“While some traditional
audio-visual content is under threat, new media content is in its relative
infancy as a possible new generator of economic wealth. “

i.e. the music label’s case is already a lost cause,
let’s move on.

 

“In the new digital
world, the ability to share content legally, becomes ever more important and
necessary.”

 

The case starts being built for legitimizing file
sharing.

 

“There is a clear and
unambiguous distinction between the legal and illegal sharing of content which
we must urgently address.”

 

Ironically this sentence is very ambiguous, but
interpreted in a strict grammatical sense, it suggests that the clear
distinction between what is legal and what is not needs to be softened. i.e. further case building for legitimization
of file sharing.

 

“Copyright is vital
for our content and communications industries.”

and

“..consumers’ desire
to access content in the time and manner they want, allowing them to use it how
they want, and at a price they are willing to pay.”

 

Copyright must be upheld, but the business models
must be radically transformed, become consumer led rather than supplier
led. This is a worthy goal, but much
easier to mandate than implement. It is,
in essence, the shift from the distribution paradigm to the consumption era.

 

The report then further builds a case for file
sharing, with statements such as the needs to “acknowledge the issues consumers are raising”, calling file
sharing an “entirely legitimate
technology”
. The latter is
particularly problematic. This is the
argument used by the networks themselves when being sued for copyright
infringement, and is normally used by file sharers themselves. Sure they can have legitimate uses, just as a
gun can have, but that’s not why they’re here or popular.

 

The report also refers to legal action being “perceived as disproportionate by consumers
and file sharing becoming “commonplace”.
Does this mean that if enough people break a law that the law gets changed? And that if the law breakers get to chose a
more lenient punishment? Either way,
this is some distance from the record labels position and indeed, some of the
government’s stated position.

 

The report suggests the approach to tackling file
sharing needs revising but instead of specific tactical solutions instead makes
bland recommendations such as the “need to work smarter”.

 

The report also builds the case for Rights Agency
that would both promote legal services and help combat illegal ones. Though it appears to expect it do so with
modest powers. For examples This
could involve working with authorities in other countries to act against
damaging sources of infringing material.”
The experience of rights owners
as diverse as the record labels, movie studios and football leagues has been
that files are often served up from countries which show little or no interest
in cooperating.

 

It goes on to discuss the lack of agreement between
labels and ISPs in the Memorandum Of Understanding process and of the need to
legislate regarding file sharing, but backs away from a ‘3 strikes’ approach,
opting instead for formalizing what is currently being conducted as part of the
MOU trial.

 

All in all, a mixed bag of a report, with something
for all parties, but equally enough to aggravate them also. The next stages of this process will require
some markedly firmer positions being taken.

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