Tuesday, June 28, 2005

Game theory 3

As I write this, EMI is up more than 1% on the day, and Vivendi Universal by a little less than 1%, in contrast to some of the anemic responses in the US market yesterday from some of the presumed beneficiaries of the Grokster ruling (AAPL, LOUD).

Om, as usual, does a great job of pulling together some interesting points of view on the decision, including his own (I particularly like the reference to VCs rediscovering the allure of enterprise software, and am particularly disturbed by the notion that the ruling may be interpreted more widely to thwart innovation - I don't know if the place-shifting pioneers are perhaps more at risk now?).

I also think the comments from Andrew Parker of CacheLogic are particularly salient, and point to an issue which many seem to have overlooked: the developers in this area are faster than those chasing them, and have proven themselves to be very resourceful in the past. From the ashes of Napster rose something infinitely more damaging, which is still with us five years later. In any event, as a number of studies have shown, the FastTrack networks which have traditionally been the focus of litigation (and indeed of this decision), are in terminal decline. Users have moved elsewhere, and the early success of the MPAA in getting torrent aggregator sites shut down has simply driven this activity elsewhere, often seemingly beyond the reach of the industry.

More fundamentally, I'm not at all convinced that some of these third generation applications can be subjected to the same sort of treatment as we envisage the likes of Streamcast receiving in future:

  • Firstly, they are clients, not "networks" or "communities."
  • Secondly, they are almost invariably developer projects, rather than products, and revenues, if any, come from voluntary donations. I doubt very seriously that the author of Azureas is in a financial position to retire to the Seychelles anytime soon, and persecuting Bram Cohen would be a source of national shame, in my view, for a country which prides itself on innovation, entrepreneurship, and the potential of the individual. He unleashed a potent distribution tool, and it's not his fault if the content world wasn't ready for it.
  • Thirdly, while users downloading these clients might have every intention of "stealing," I think it would be impossible to argue that the developers have pushed people towards any particular sort of behavior, as might have been relevant in the Grokster case. If we are going to extend the net to encompass developers of software/hardware that might be employed in infringing uses, then I guess we had better include all IM platforms, Skype, all flash memory devices, all PVRs and portable media devices, and hell why not all computer hardware?

I guess it would be churlish to point out that the entertainment world hasn't always been 100%, iron-clad averse to file sharing as a phenomenon. I agree that yesterday's decision brought some hard lessons to some people who thought they might have escaped on the strength of their rhetoric and legal precedents. At the same time, I think we have to be honest and recognize that this was a victory against five year-old technologies and business models, i.e., this was the easy win. The real problems/challenges arise with greater decentralization, and this is potentially another world of pain for the industry. I am reminded of the 1980s, when US law enforcement focused on interdiction of marijuana traffic, presumably because it was easier to find and produced more dramatic news footage, and inadvertently spawned an explosion of cocaine use.

UPDATE: JD Lasica's post contains some other difficult questions.

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