On Tuesday the Supreme Court heard the case of MGM vs. Grokster. MGM, the legendary film studio is suing the creators of the file sharing software company Grokster and others like Streamcast (who are better known by their product Morpheus).
Is this important to you? You bet it is. Who's right? They both are. But how can they both be right? Well, as with most things, the truth, as well as the solution, fall somewhere in the middle. If that sounds a bit too Zen, then so be it, but in my 40 years on this planet and my 22 years in the entertainment business, I've found that where situations like this are concerned, each side makes some very good points, and each side overstates its fears.
At issue for the entertainment industry is the unlawful sharing of copyrighted material, which generates no revenue for the content owner, making it potentially difficult to fuel future content development. On the other side, we have technology developers concerned that an adverse ruling will result in a marketplace that either stunts or jeopardizes innovation, creating an atmosphere of overly cautious R&D.
Unfortunately, the justices, who are expected to deliver their judgment sometime in June, will most likely not weigh in with a magic solution, but will probably come down on one side or the other, most likely sending the issue to the U.S. Congress. This is not good for anyone, as the overwhelming majority of our elected officials are spineless toadies for the lobbying body that contributes the most to their re-election effort.
Cynicism aside, having Congress mandate a solution for this case is sort of like letting your mom buy your clothes; yes, she CAN buy clothing, but my God, not that!
The MGM side is supported and funded by numerous film and television studios and record companies, not to mention content owning organizations like Major League Baseball. The Grokster side is supported by a number of large tech companies, as well as some small activist groups like the Electronic Frontier Foundation, and its legal bills are being paid by "billionaire" Dallas Mavericks owner Mark Cuban, quite possibly the biggest press whore west of Donald Trump.
The entertainment industry would probably have no problem winning this case if it weren't for a century of cheating, lying, stealing, and fighting innovation EVERY step of the way EVERY time something new and interesting came along. Who can forget the brilliant Jack Valenti likening the VHS to Jack the Ripper. I personally remember the utter fear that spread throughout the music industry in the late '90s -- just as the Internet started to kick into high gear -- when execs didn't want to allow even 30-second, low-bit streams because that would be a substitutional experience and people wouldn't want to buy the album. These same execs were paying retailers all over the country enormous sums of money to set up kiosks in their stores with CD listening stations.
To be fair to the entertainment industry, the development of content or talent is an extremely expensive endeavor. Most creative products fail, and the few that succeed help pay for not only the failures but the development of new projects. If people consume without paying, there's no influx of revenue to fund new development.
There's also a great deal of misinformation flying around about what it "REALLY" costs to make a record. I work in this business and I can tell you that most of what I read about what it costs to make a record is written by people with a third-grade understanding of the business. They have some facts, but not enough to speak credibly. Have music companies made large profits? Sure, but so does Apple and no one seems to fault them. If the issue is that the artists don't get enough of a share, ask Virgin how much they got when The Rolling Stones made $130 million dollars on their last tour. It's a two-way street, and I can assure you that artists take advantage of record companies just about as much as record companies take advantage of artists.
The somewhere in the middle for the entertainment industry is that they must realize file sharing is here to stay and that it presents a value to the industry (though we may not know exactly what that value is yet). At some point they're going to have to figure out how to turn things around so that money can be made with this technology. It's also incumbent upon the industry to innovate and create for new media. Sticking to old paradigms is a recipe for an anemic future. The world of entertainment awareness and consumption is changing, but the internal changes at record companies in particular are moving behind the pace of the former. Additionally, there will need to be a wholesale reassessment of how those in the value chain are compensated. In a world where consumers have access to millions of pieces of content on demand, it will be very hard to work on a penny rate. It will be necessary to develop more of a percentage-based share of the pie. This allows for more flexibility where pricing is concerned.
The file trading companies would probably have an easier run at the court if it weren't for the fact that many of their senior execs, as well as many of those heading supportive organizations, have filled their rhetoric with moronic statements that all music should be free for everyone and should be obtainable in any way the end user wishes. This is simply irrational and unrealistic. They claim that they tried hard to work out solutions to compensate the entertainment companies, but I can tell you, I'm familiar with what they were offering and it wasn't much of an effort.
I remember sitting in the audience at a new media conference here in Los Angeles when a well-known artist manager asked Wayne Rosso, the founder of Grokster (at that time no longer with Grokster but the head of a new file trading company), if the tables were turned and he was now the head of a large music company, what he would do to help solve the problem of illegal file sharing. Wayne said "I'd make all the music available." The manager pressed him with "OK, and then what? How does my artist get compensated?" Wayne stood there for about two minutes of complete silence and then asked for another question.
There is a cost to creating something and if someone is going to derive enjoyment from it, it should be paid for, unless the creator wishes to give it away for free.
I do not equate the behavior of companies like Intel, Apple, or other established technology developers with those of Kazaa which has done everything in it's power to create an opaque organization headquartered on a small Pacific island nation that no one every heard of until Survivor chose it for last season's show. Kazaa is completely disingenuous in its efforts to be a legitimate organization and it deserves what it gets.
That said, there are many great technological innovations that start out in one direction but change significantly when someone realizes a better use. Situations like this need to be fostered, because in the end, as history has proven, these innovations lead to billion-dollar industries that many can take advantage of, especially the entertainment business.
The somewhere in the middle for the technology industry is that it must recognize that they are not judge and jury over the content. They have to respect the desire for the entertainment industry to be fairly compensated for the works they generate. Cavalier attitudes that they're the innovators and the drivers of the future are wrong and misdirected. A great device is only great if it has great content playing on it.
In the end, we will solve this problem as we always do. We will reach a consensus on how to allow technological innovation while compensating creators. My hope is that we do this organically rather than through legislation. Like everyone else out there, I don't know how it will all go, but I feel confident in one thing: We will relive this drama in about 20 years when the next major shift takes place.
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