Quotes of the Day
James Phung saw Phone Booth before you did. What's more, he saw it for free, in the comfort of his private home-screening room. Phung isn't a movie star or a Hollywood insider; he's a junior at the University of Texas who makes $8 an hour at the campus computer lab. But many big-budget Hollywood movies have their North American premieres in his humble off-campus apartment. Like millions of other people, Phung downloads movies for free from the Internet, often before they hit theaters. Phone Booth will fit nicely on his 120-GB hard drive alongside Anger Management, Tears of the Sun and about 125 other films, not to mention more than 2,000 songs. "Basically," he says, "the world is at my fingertips."
Phung is the entertainment industry's worst nightmare, but he's very real, and there are a lot more like him. Quietly, with no sirens and no breaking glass, your friends and neighbors and colleagues and children are on a 24-hour virtual smash-and-grab looting spree, aided and abetted by the anonymity of the Internet. Every month they — or is it we? — download some 2.6 billion files illegally, and that's just music. That number doesn't include the movies, TV shows, software and video games that circulate online. First-run films turn up online well before they hit the theaters. Albums debut on the Net before they have a chance to hit the charts. Somewhere along the line, Americans — indeed, computer users everywhere — have made a collective decision that since no one can make us pay for entertainment, we're not going to.
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As crimes go, downloading has a distinctly victimless feel to it — can anything this fun be wrong? — but there are real consequences. Click by click, file by file, we are tearing the entertainment industry apart. CD shipments last year were down 9%, on top of a 6% decline in 2001. A report by Internet services company Divine estimates pirates swap between 400,000 and 600,000 movies online every day. It's information-superhighway robbery.
If you ask the pirates, they'll say they're just fighting for their right to party. If you ask the suits, they'll say they're fighting for their lives. "If we let this stand, you're going to see the undoing of this society," says Jack Valenti, head of the Motion Picture Association of America (M.P.A.A.). "I didn't preside over this movie industry to see it disintegrate like the music industry." Them's fightin' words, and the battle lines are being drawn. Two landmark legal decisions last week, one in favor of the entertainment industry and one against it, will shape the way we deal with digital movies and music for years to come. The only thing left to decide is which side of those battle lines you're on.
It's easy to see why the pirates do what they do. Right now you can find thousands of free movies online if you know where to look — a glance at one popular website yields links to copies of Holes, Malibu's Most Wanted and even the Rowan Atkinson comedy Johnny English, which won't hit U.S. theaters until July. Just about every song ever released — as well as quite a few that haven't been — is available online for nothing more than the effort it takes to point and click. Record-industry types have a cute nickname for this phenomenon: "the celestial jukebox."
Most online piracy happens through what is called file-sharing software, such as Kazaa, Gnutella and Direct Connect, that links millions of computers to one another over the Internet. File-sharing software takes advantage of the fact that music and movies are stored as digital data — they're not vinyl and celluloid anymore, but collections of disembodied, computerized bits and bytes that can be stored or played on a computer and transmitted over the Internet as easily as e-mail. Using file-sharing software, people can literally browse through one another's digital music and movie collections, picking and choosing and swapping whatever they want. If you've never tried it, it's hard to describe how seductive it is. Start up a program like Kazaa, type in the name of your favorite rock band, and a list of song titles will instantly appear on your screen. See something you like, click on it, and it's yours. An average song might take two minutes to download to your computer if you have a broadband connection. Log on any night of the week and you'll find millions of users sharing hundreds of millions of songs, movies and more.
Ask your average high school kids if they use Kazaa, and the answer is a resounding "duh." Stewart Laperouse and Jennifer Rieger, a couple at Cy-Fair High School in Houston, log on as part of their regular after-school routine — it's the new milk and cookies. Often they do their downloading a deux, after he gets out of lacrosse practice. His collection is relatively small: 150 songs and about 50 music videos. She's the real repeat offender, with 400 pilfered tracks on her hard drive. "Who wouldn't want to do this?" Rieger says. "It's totally free and it's easy." Look for pangs of guilt and you'll get only shrugs.
This isn't how it was supposed to be. A little more than three years ago the Recording Industry Association of America (R.I.A.A.), which represents most U.S. record labels, filed suit against Napster, the granddaddy of file-sharing services, for "contributory and vicarious copyright infringement." The R.I.A.A. won; Napster lost. A judge ordered its servers shut down. End of story?
Hardly. The file-sharing services didn't go away. They evolved, getting smarter and more decentralized and harder to shut down. Napster's network relied on a central server, an Achilles' heel that made it easier to unplug and shut down. But Kazaa, now the most popular file-sharing software, is built around a floating, distributed network of individual PCs that has no center. There's no single plug to pull. Kazaa has savvily chosen a decentralized business strategy too: it's a mirage of complicated partnerships with the official owner, Sharman Networks, tucked away on the South Pacific island of Vanuatu. So far, its diffuse structure has kept its management off U.S. soil and out of U.S. courtrooms.
It isn't just the file-sharing companies that are evolving; the Internet is too. Broadband Internet access has become cheaper and more widespread — analysts expect the number of households with broadband to jump 41% this year — and that means we can move bigger, fatter files in less and less time. Personal computers have also evolved. In 1992 the average hard drive was 120 megabytes. Now it's 40 gigabytes, 300 times as big — perfect for stashing whole libraries of audio and video. CD and DVD burners used to be expensive peripherals; now they come standard. Every new PC is a self-contained entertainment studio, right out of the box. What we have here is not a failure to communicate; it's a raging, runaway success.
The consequence of the high-tech evolution is a new generation of technologically empowered consumers for whom free entertainment isn't a windfall, it's a basic right. Just ask Sean Farrell, a senior at Yale. A sophisticated listener, he dabbles in jazz and classical along with the usual hip-hop. But he hasn't bought a CD in four years. Instead, he has 5,000 songs on his computer's 430-GB hard drive, and more in the 20-GB MP3 player — an Apple iPod — that is permanently attached to his hip. When he and his roommates have parties, they don't bother with CDs, they just run cables from the computer in Farrell's bedroom to the stereo in the common room and blast the free tunes straight off his PC. "I don't feel really guilty," he says. "The music industry has to realize that this is here to stay; it's not going away." See the pattern yet?
For years people wondered whether all this downloading would actually affect the entertainment industry's bottom line. Now that last year's numbers are in, we have the answer. According to Nielsen SoundScan, CD album sales slid from 712 million units in 2001 to 680 million in 2002. CD sales in the first quarter of 2003 were down 15 million units from last year. Or look at it this way: in 2000 the top 10 albums in America sold 60 million copies; in 2001, 40 million; in 2002, 33 million. Nobody knows for sure exactly how much of the decline is caused by piracy, but it's safe to say the answer is somewhere between "some of it" and "most of it." Sure, the economy had a down year, but people found enough spare change in their couches to boost sales of MP3 players 56% over 2001. And while consumers bought about 680 million albums last year, they purchased 1.7 billion blank CDs — up 40% from the year before. The clear implication: users are downloading free music and burning it onto blank CDs. Industry analysts are reduced to fairy-tale metaphors to describe the change. The genie is out of the bottle. Pandora's box is open. The dikes have burst, and the Dutch boy has gone surfing.
Which isn't to say music executives are sitting around wringing their hands. It takes time for any corporation to recognize that its universe has changed, and major labels don't exactly turn on a dime. For Martin Bandier, chairman and CEO of EMI Music Publishing, the dime dropped three years ago when his 11-year-old son Max gave him a present: his 100 favorite Motown songs. "I said, 'But we have hundreds of copies!'" Bandier recalls. "He said, 'This is in a different place — on my hard drive.' It was scary." Bandier immediately convened a war council to figure out how to protect EMI's precious song catalog, which ranges from Judy Garland to Norah Jones. "People did not think it was real in the beginning," he says. "It's as real as can be."
Reality bit, and deep. In 2001 EMI brought in new top management, including chairman of EMI Recorded Music Alain Levy, to help navigate the brave new digital world. The administration promptly laid off 1,800 employees (20% of EMI's staff), which helped absorb the impact when sales fell 10% in 2002 — and created an executive position, global head of antipiracy. It also brought in executive vice president John Rose, an e-commerce ace from consulting firm McKinsey. "The fundamental premise of hiring someone like me," says Rose, "is that this industry needs to be re-engineered." Since last summer, EMI has been holding weekly three-hour lunch meetings with artists, managers, agents and lawyers, a dozen at a time, to explain to them, as Rose puts it, "how the world needs to evolve."
First order of business: evolve some claws. Some labels (they're reluctant to identify themselves) hire professional counterhackers, companies like Overpeer, based in Manhattan, that specialize in electronic countermeasures such as "spoofing" — releasing dummy versions of popular songs onto file-sharing networks. To your average Kazaa user they look like the real thing, but when you download them, they turn out to be unplayable. Movie studios, meanwhile, staff screenings with ushers wearing night-vision goggles to suss out would-be pirates with camcorders. When Epic Records distributed review copies of the new Pearl Jam album last fall, it sent them inside CD players that had been glued shut. The White Stripes went further: review copies of their new album Elephant were sent on good old-fashioned vinyl, which is trickier to copy. In the copy-protection wars, low tech is the new high tech.
For EMI, the plan is not to prohibit copying, just to keep us from doing it quite so much. In theory, the CD of the future will be smart enough to let its owner make one copy of a song for the computer, one for the iPod, and maybe burn an extra for the car, but that's it. But even that might annoy consumers who are used to making as many copies as they want. Even if the smart CD of the future becomes a reality, to work at all it will have to work absolutely perfectly. If just one copy leaks onto Kazaa, anywhere in the world, millions of people can have all the copies they want.
Of course, there's an even older-fashioned way to keep people from stealing your stuff. It's called the law. "What we're dealing with is thievery, plain and simple," says the M.P.A.A.'s Valenti. "People try to use a lot of sophistry to get away from that fact." The legal landscape on which the war against piracy will be fought is being defined right now. In January a federal judge ruled that Verizon, a telephone company that is also an Internet service provider (ISP), must honor the R.I.A.A. subpoena to reveal the identity of one of its customers, a Kazaa user whom they suspect of downloading more than 600 songs. Verizon asked for a stay of the decison, and a flurry of briefs from the M.P.A.A. (backing the record companies) and numerous privacy and consumer organizations (on behalf of Verizon) ensued. On Thursday, the judge denied Verizon's request. Unless it can get a reprieve from an appeals court, the company has 14 days (and counting) to come up with the name.
The message is clear: If you're going to download music, don't expect to hide behind the anonymity of the Internet. On the other hand, if you're in the business of making file-sharing software, you have a lot less to worry about. On Friday a federal judge ruled that two companies — Grokster and StreamCast Networks, which makes a program called Morpheus — were not liable if users of their file-sharing software infringed on someone else's copyright. In his decision Judge Stephen Wilson cited the legal fuss that sprang up in the 1980s over Sony's Betamax technology. Like file sharing, it was a tool that could be used for both legal and illegal copying. Then, as now, the former was deemed to outweigh the latter.
The ruling is a stinging blow for the R.I.A.A. and the M.P.A.A., which brought the suit (and will appeal it), and it tells us a lot about how the war against piracy will be fought. If file-sharing services won't sit still and be sued, individual users will make easier targets. Case in point: lawsuits filed last month against students at Princeton, Michigan Technological University and Rensselaer Polytechnic Institute that seek billions of dollars in damages — $150,000 for each pirated song. Nobody thinks piracy can be stopped by suing one user at a time, but if companies focus on major uploaders — people who make huge numbers of files available for others to download — a few high-profile busts may scare off some of the rest. "In the Verizon case, we got the judgment that we really needed," says Andrew Lack, chairman and CEO of Sony Music Entertainment, "which is that on an individual basis you are being ripped off, and you have a right to stop that."
The pace is picking up as Big Media head to court with everybody they can think of. The M.P.A.A. is wrangling with a company called 321 Studios over the legality of one of 321's products, software that enables consumers to make free copies of movies from DVDs. The FBI busted a Los Angeles man last week for camcording movies off the big screen and selling copies — a legal first. Universal Music Group and EMI have even filed suit against venture-capital firm Hummer Winblad just because it invested in Napster back in 2000.
But the legal fight is far from a sure thing. Copyright laws are slippery and subjective — the judge in the Grokster case made a special plea in his ruling asking Congress to fix gaps in the laws that cover file sharing. Enforcing those laws is also tricky. Colleges, where a lot of the downloading goes on, like to think of themselves as bastions of privacy and free speech, not copyright police. The international reach of the Internet makes enforcement even dodgier. Case in point: in 1999 Jon Johansen, a Norwegian teenager, figured out how to break the copy protection on commercial DVDs, making possible the cheap, high-quality, a la carte copying of movies. This information became, shall we say, fairly popular on the Internet, earning Johansen, who was 15 at the time, the nickname "DVD Jon." In 2000 Norwegian prosecutors, egged on by the M.P.A.A., charged him with violating digital-security laws. In January the verdict came in: Johansen got off. An appeals hearing is scheduled for December.
There's another problem with suing people: it doesn't make you popular with your customers — and Big Media are already fighting a major p.r. battle. Everybody who has ever watched VH1's Behind the Music has heard musicians bad-mouth their record labels, and no one is going to feel bad for ripping off the suits who ripped off their favorite rock star. File sharing has become cool, a way to fight the power, to stick it to the Man. Re-engineering the public image of studio executives probably isn't in the cards — these are, after all, the same companies that coughed up $143 million last October to settle a class action accusing them of price fixing — but in the past few months, more and more artists have begun speaking out, and they stand a better chance of winning sympathy. For years musicians and other artists were reluctant to address file sharing, in part because they saw how uncool Metallica's James Hetfield looked when he tried. But in September the likes of Nelly, the Dixie Chicks, Brian Wilson and the incontrovertibly cool Missy Elliott delivered televised antipiracy scoldings. In April, Ben Affleck appeared in an antipiracy spot on behalf of the movie industry. Still, you don't have to be Alanis Morissette to spot the irony in a zillionaire celebrity pleading for sympathy. After a spoofed version of Madonna's new album, American Life, started circulating on the Net, featuring a recording of the Material Girl saying "What the f--- do you think you're doing?", a hacker took over the singer's website, Madonna.com, and posted real, downloadable MP3s of every song on the album.
The entertainment industry's grand plan for surviving piracy isn't just about the stick; there's a carrot too, a big one. The Internet offers a whole new way of selling music, and when music and movie executives are not expressing their outrage over downloading, they are salivating over a potentially massive revenue opportunity. There are already a couple of dozen legal, pay-to-play downloading services, including Pressplay, Listen.com's Rhapsody and Music Net. Apple Computer has a new service, which was slated for rollout this Monday, that's meant to integrate seamlessly with its iPod MP3 player and its iTunes music software. Movie and TV downloading websites are sprouting up as well. Movielink, which is backed by five major Hollywood studios, made its debut in November and features a library of more than 300 films. SoapCity.com offers online episodes of daytime serials.
But these services face competition you wouldn't wish on Bill Gates. Unlike, say, Kazaa, they have to clear each song or movie or show for digital distribution with each individual artist and studio. They have made significant progress — Pressplay, for example, has upwards of 300,000 tracks available for download, with membership starting at $9.95 a month — but it's slow work. The for-pay services also mire users in a mesh of restrictions that limit what they can do with the music they download. That $9.95 plan at Pressplay buys you unlimited downloads, but you can't move the songs to your portable MP3 player or burn copies of them onto a CD, and you can listen to them only so long as you're a Pressplay subscriber. Miss a payment, and the files lock up. For $8 more a month, Pressplay gives you 10 "portable" downloads that are free of those constraints. But compare that with the roughly infinite number of unrestricted, unconstrained, infinitely copyable downloads that Kazaa offers for roughly nothing, and you can see that Pressplay has an uphill battle on its hands.
Pressplay and the other "legitimate" music services are more reliable than Kazaa and its ilk. For one thing, there's no porn and no spoofing, and Apple's new offering is expected to give the whole process a more streamlined, user-friendly feel. These services also give customers the peace of mind that comes with not breaking the law. It will be interesting to see how much that's worth. But for now listeners are staying away in droves; industry analysts estimate that the legitimate downloading services have fewer than 300,000 users in all. Still, if the retail-music business is going to survive, this may be what it has to look like, and for the business side, that's the real significance of the digital revolution. "It's not piracy per se but a transition to a digital world that will transform what a record company is and how it works," says EMI's Rose. "While downloading is an important issue, it's just symbolic of a much more fundamental shift in how music will be moved and acquired by consumers and be used."
Can the for-pay services compete? Maybe. Can antipiracy laws be enforced? Perhaps. Can copy protection stand up to a hacker army of teenage Jon Johansens? It's possible. But all this raises an interesting question: What if the pirates win? If you play the thought experiment out to its logical extreme, the body count is high. After all, you can't have an information economy in which all information is free. The major music labels would disappear; ditto the record stores that sell their CDs. The age of millionaire rock stars would be over; they would become as much a historical curiosity as the landed aristocracy is today. Instead, musicians would scratch out a living on the touring circuit, since in an age of free music the only commodity they would control is live performance, along with any merchandise they could hawk in the parking lot after the show. Hollywood would also take a hit. People might still pay to watch movies in the theater — viewing on the big screen beats watching movies on your computer — but Hollywood would have to do without revenue from video stores. Who's going to rent what they can download for free? TV studios would likewise have to do without their cushy syndication deals, since the Net would become the land of infinite reruns. Hope you like product placement — you'll be seeing a lot of it. Already this July the WB network and Pepsi plan to launch an American Bandstand — style TV show called Pepsi Smash, featuring performances by big-ticket music acts. Alternative revenue streams never tasted so good.
In a sense, the future is already here. You can see it in action in Asia. Piracy is a growing phenomenon in the U.S., but in some developing countries, it is a fact of life. There's a marketplace in Karachi, Pakistan, where you can buy a DVD of How to Lose a Guy in 10 Days for 100 rupees (about $1.75) even while it's playing in first-run theaters in the U.S. Karachi boasts five optical-disc factories, just one of which churns out 40 million pirated discs a year. If you think American teenagers are guiltless, file-swapping punks, try talking to a Karachi shopkeeper. "We make copy of everything!" says Mohammed Haris. "Even George Bush cannot dare to come over here. We will keep the original and send his copy back home."
This kind of commercial piracy has devastated the Asian entertainment industry. In China, where piracy rates for movies, music and software are all more than 90%, record companies trying to develop local talent have bled money for years. Every time they try to build up a star, the pirates siphon off the profits. "There's no point in spending money to drive demand," says Samuel Chou, Warner Music's CEO for China and Taiwan, "because what you drive all goes to piracy."
It's a scary cautionary tale — but at this point, hypothetical horror stories are almost beside the point. The people have spoken, and they say they want a revolution. File sharing isn't going to save us from corporate entertainment the way the Beatles saved Pepperland from the Blue Meanies, but if it allows more people to listen to more music in more ways than they ever have before, can it be all bad? And does good or bad even matter? Technology has a way of sweeping aside questions of what is right or wrong and replacing them with the reality of what is possible. Recorded entertainment has gone from an analog object to a disembodied digital spirit roaming the planet's information infrastructure at will, and all the litigation and legislation in the world won't change it back. The genie is out of the bottle, and we're fresh out of wishes.
- Lev Grossman