Napster: Siphoning Off Digital Income Streams

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The
invention and rapid adoption of Napster’s technology of shared digits
has brought to the forefront the issue of private property in ideas.
This legal and moral issue will not go away soon.

The
publishing industry is going to change. So is the entertainment
industry.

On
October 31, 1517, an obscure professor of theology named Martin
Luther went to the church in Wittenberg and nailed to its door a
challenge, written in Latin, to debate 95 points of theology. One
would not have expected this event to launch a social, political,
and theological revolution. Had it not been for the technology of
the printing press, then two generations old, it couldn’t have.

Somehow,
a now-forgotten printer got a copy of the document. He had it translated
into German. Then he published a few copies. They sold. He published
some more. They sold. Pretty soon, printers all over Germany were
selling copies.

Had
it not been for the printing press, we would never had heard of
Luther. Luther was a radical and genius promoter who soon grasped
what this new technology could do. He became the first and still
the greatest master of the pamphlet. Philip Schaff, the 19th
century church historian, describes what happened next.

The
statistics of the book trade in the sixteenth century reveal an
extraordinary increase since Luther. In the year 1513, there appeared
only ninety prints in Germany; in 1514, one hundred and six; in
1515, one hundred and forty-five; in 1516, one hundred and five;
in 1517, eighty-one. They are mostly little devotional tracts,
flying newspapers, official notices, medical prescriptions, stories,
and satirical exposures of clerical and monastic corruptions.
In 1518 the number rose to one hundred and forty-six; in 1519,
to two hundred and fifty-two; in 1520, to five hundred and seventy-one;
in 1521, to five hundred and twenty-three; in 1522, to six hundred
and seventy-seven; in 1523, to nine hundred and forty-four. Thus
the total number of prints in the five years preceding the Reformation
amounted only to five hundred and twenty-seven; in the six years
after the Reformation, it rose to three thousand one hundred and
thirteen.

These
works are distributed over fifty different cities of Germany.
Of all the works printed between 1518 and 1523 no less than six
hundred appeared in Wittenberg; the others mostly in Nurnberg,
Leipzig, Cologne, Strassburg, Hagenau, Augsburg, Basel, Halberstadt,
and Magdeburg. Luther created the book-trade in Northern Germany,
and made the little town of Wittenberg one of the principal book-marts.
. .

Luther
gave to the world the first mass
market publication industry
. This market is what made literacy
a valuable skill for the common man.

Luther
was not trying to get rich. He was trying, first, to reform the
Catholic Church, and later to destroy it. He let his publishers
keep the money. He settled for the Reformation.

Entertainment
Tomorrow Night

The
entertainment industry now faces a crisis comparable to what the
Papacy faced in 1540. It cannot stop the technology of digital distribution.
Napster makes no money directly for the use of its technology, which
links tens of thousands of computers and their music files. "Share
and share alike" is legal, according to United States law.
It is hard to imagine legislation that could stop this digitized
sharing process without creating a tyranny. If the Soviet Union
had problems controlling the use of photocopy machines, what will
any constitutional republic do about phone lines?

For
an unknown performer, Napster is no big threat. If anything, it
is a benefit. I contacted a songwriter-performer friend of mine,
who 32 years ago made a lot of money with one big hit song he wrote.
He told me that he had not given much thought to Napster, but he
thought it might help his performing career. He makes most of his
money playing before small audiences. Napster could make these audiences
larger. (I checked his name on Napster: no listing. It’s not 1968
any more.)

The
recording industry, like the book publishing industry, meets its
payrolls with income derived from a few performers who happen to
hit it big, usually briefly. The industry sells millions of their
CD’s, takes the money, and gives these performers a small royalty.
Most of the industry’s CD’s do not make much money. The strategy
is to lock in one performer who, through unforeseen free market
forces, subsequently makes it big. Not many ever do.

Napster
and competing technologies threaten to undermine this arrangement.
Digits are digits; the 100,000th copy is identical to
the digital master. Most pop music has a very short half life. Napster
threatens to cut deeply into the sales of these short-term monster
hits. It can match supply with demand at zero monetary price.

The
music industry will make a few performers famous, only to see its
income streams siphoned off by the consumers’ sharing of digits.
There is not much that the industry can do about this.

For
successful performers, this will be a mixed bag: more
concert tours and larger audiences, from which the performers receive
the lion’s share of the ticket price, vs. reduced royalties due
to reduced CD sales. On the whole, this will be beneficial for most
of those performers who gain favor with the public. As for the unknowns,
some will make big it through the Web, and others will not get noticed,
since the music industry will not be able to carry as much skim
milk when its cream is being skimmed off.

The
Web will bury this law. As soon as technology delivers a lightweight,
flat-panel screen with 1200 dots per inch resolution for a book-sized
reader that runs on rechargeable batteries, the book publishing
industry will face what the recording industry now faces: the shared
digits phenomenon.

Book
publishing will be governed by a new rule: "If it’s worth producing
a Cliff’s Notes version of a book, it’s worth downloading the book
for free" — along with an attached copy of Cliff’s Notes.

There
is one book I never expect to see in a book store: Downloading
for Dummies. It would be the equivalent of Abbie Hoffman’s Steal
This Book
.

Consider
a college textbook that sells for $65. Its pages — color and all
— can be put into digital format, such as with the DjVu
technology
. Once on-line, it can be downloaded in a few minutes.
With fiber optics, it will take only seconds. The cost of printing
out the pages on a laser printer would be about $10 for 1,000 pages.
The more widely adopted the textbook, the more likely that some
student will post it on-line.

The
"information should be free" ethics of the World Wide
Web favors sharing. If it is not illegal in Lower Slobbovia to post
a book on-line, then a student will not think twice about the economic
implications of what he is doing to the publisher, for whom he has
no love anyway.

Today,
reproducing an image of a book on the Web is a technological hassle.
In ten years or less, new technologies will make it simple. The
cost of sharing digits will fall. The amount demanded will rise
as the costs fall.

What
will video rental stores do when DVD copies of movies can be downloaded,
free of charge, in a few minutes, over fiber optic lines? What will
movie theaters do when they all use only digitally distributed movies
to show on-screen. The premier showing of "Titan A.E."
this summer was transmitted digitally. One easily purloined copy,
and the movie is available on-line for free.

Encryption
is one solution. But encryption has limits. It can be broken if
enough time is focused on one code-breaking project. Meanwhile,
the National Security Agency makes it illegal for American software
firms to produce and sell advanced encryption technologies for data
transmission. The government wants control
over private data transmission
. If the government eases up on
these rules, privacy will make a quantum leap forward. What’s a
government to do?

Conclusion

If
you are an executive with a major New York publisher, start working
on your resume.

If
I were going to write a book on the future of the movie industry,
I’d call it Saving Private Spielberg.

September
8, 2000

Gary North is the author of a ten-volume series, An Economic
Commentary on the Bible. The latest volume is Sacrifice and
Dominion: An Economic Commentary on Acts. The series can be downloaded
free of charge at www.freebooks.com.

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