Warning: session_start() expects parameter 1 to be array, string given in /home/yourband/public_html/MusicTank/wp-includes/class-wp-hook.php on line 287
Let’s Sell Recorded Music! Part 4: Squaring The Circle – MusicTank

Warning: sizeof(): Parameter must be an array or an object that implements Countable in /home/yourband/public_html/MusicTank/wp-content/themes/musictank/woocommerce/content-single-product.php on line 26

Let’s Sell Recorded Music! Part 4: Squaring The Circle

Warning: A non-numeric value encountered in /home/yourband/public_html/MusicTank/wp-content/plugins/woocommerce/includes/abstracts/abstract-wc-product.php on line 923

Drawing together conclusions from the series and scope possible areas for consultation, research and development. It will also consider the main issue to surface throughout this discussion strand: at the heart of the future of digital music sales, does the future lie in licensing proprietary, closed music services or open systems that somehow utilise P2P?



“LET’S SELL RECORDED MUSIC!” Pt 4: ‘Squaring The Circle’

Introduction: KEITH HARRIS, Chair

We’ve been running a series about digital delivery of music and the way forward.  We’re trying to be positive in terms of looking at what’s going to happen for the industry.  We’re going to try to sum up some of the points that have been made.  One of the key things that seems to have arisen is the idea of blanket licensing vs. granular sales.  One of the key suggestions that was made was that many of the bigger labels are very concerned about any of the new models eating into their iTunes sales.

1. Keynote: DAN KLEIN, Media Accounts Director, Detica

The question that we’ve been set: “Does the future of digital music sales lie in proprietary systems or somehow using this peer to peer idea?”

I’m going to go through why Detica is here, and why we are interesting.

Detica has worked with all the broadband providers and for the last 30 years, looking at what’s going on in their network, analysing how consumers are operating.  We are also the sixth largest new media agency.  Thirdly, we have a forensics division that takes down criminals who are ripping off content.  We understand and support copyright enforcement activities.

We believe as a business we are underpinned by intelligence and security in delivering all those services.

About 12 months ago we looked at ISPs and why they haven’t gone into music.  In 2007 we looked at the data, at music, video and games.  If we take music at £1.5 billion and break it down:

  • a lot is still on physical media;
  • a little bit, £163 milllion, is sold digitally;

There’s the old statistic that 1 in 20 music files are legitimate and the other 19 are illegal.  If we take that and calculate, you get about £3 billion if you assume that the 19 out of 20 who don’t pay would pay.  So we thought, if you try to convert a small amount of that what would you get: if you could even get another 5 per cent.  What could that potentially mean for the industry?

With just that 5 per cent we’re potentially looking at some big numbers for the broadband companies, so why are they not getting involved?

We believe that we need to be proposing a new model.  What we are suggesting is that we need to enforce copyright, but the ISPs will need to add capability to measure and analyse within the network.  Once you’ve done that, you can then start to understand what the potential business models are, based on real data.  Key to this is to legitimise the existing P2P activity.

So why do we think that?

We do fraud prevention stuff.  We do work with HMRC on tax evasion.  Another example:

How do you stop people riding on trains or buses for free?  You can have more conductors, on buses or on the stations.  When we work with these issues, we apply a 10:80:10 model.  That is, 10 per cent of people will never steal, 10 per cent of people will always steal, and 80 per cent of people will go either way.

When we look at that, we see there are three key things around enforcement, culturally:

Some people always steal, so you have to do investigation and look at prevention, and deterrence.

In the voluntary space you are only talking about escalation and you are talking about enablers and incentives.  It’s an important distinction between that and enforcement.

Aside from this, we’ve done some work looking at iTunes data.

If you think about the dominant provider of MP3 players – and that’s Apple with 85 per cent of the market – and look at their data:

What you find is that only 15 per cent of those on iTunes are buying music from their store, and these are the 35–55 year old males.  The important thing is the other 85 per cent,  70 per cent of whom aren’t even buying three tracks a year.  So where are they?  If you put that up against a 10:80:10 fraud model, there’s clearly a very large group of people – the voluntary – and you need to be doing something with them.

We believe there is a third way.  There are a lot of new business models coming into the market at the moment.  We can talk about Last.fm, Pink Champagne.  The current unlicensed services however are very compelling.

Looking at the voluntary stuff around fraud, you’ve got to look at education and behaviour change, which are frankly very hard.  The flip of that is internet enforcement, warning letters, and engaging the police.

The key thing is that there’s no provision inside the network to actually help with that, so you end up with over the top internet based solutions that sit inside torrent networks, and that’s a kind of difficult one.

The ISPs are interested in solving this problem because they have 1 per cent of their customers using 30 per cent of bandwidth.  So they really have a problem, and if you look at that one per cent, you realise that they’re really doing a lot of illegal downloading.  It’s manually intensive and subject to technology change.

So the third way we propose is that we need to get inside the ISPs’ networks and measure what’s being done.  You can then look at subscription models;  you can look at music and video preferencing (are there ways to look at what people are looking at to decide what gigs to send them to, or what is the new video or piece of music to position to them?); and finally, is there any value in the data?  Do people who listen to Dire Straights also buy BMW cars?  Maybe they do, and maybe that’s something that could be of value to BMW.  It’s an opportunity to make money that could then pay for the unlicensed activity that’s going on.


Rt Hon Andy Burnham, MP (Secretary of State for Culture, Media and Sport): I welcome what Dan has said.  It’s not my job to find business models.  My job is to ensure there remains a pressure to find a solution.  This industry is too important to the country for there not to be one.  That’s what we said in the Creative Britain document that we produced earlier in the year.

We think there has been a change of tone over the course of the past year, and that this dialogue between the industry and ISPs has moved on considerably.  This dialogue has opened up a space in which this kind of analysis can ask, “what are the new models?”.

We have to keep that pressure on.  If it’s all vague and empty threats then all the progress we make can easily slip back.  The damage being done was alarming when I came into the job and approaching a point where things didn’t seem rescuable.  Things are,  I think, rescuable, though and when I say we’ve had some success this year, I mean that we have begun to challenge the view that content is free.

“The big challenge is to come up with solutions that don’t criminalise a whole generation.”

My generation was ripped off by the music industry in that I think we paid heavily for lots of titles on lots of formats… but let’s not get into that debate now.  Young people have today got access to and an ability to enjoy and share music – although the word “share” might raise problems – but there is something precious in that.  But gone are the days when you had to save up to buy an album, and then had to make yourself love it because you’d put so much into it.  That’s great but that has to be done in a way that rewards artists for their effort.

“We are looking for people to find those realistic solutions that reward the creators and capture the benefits without having to turn the clock back.  We’re optimistic that it can be done.”

The French have gone straight for legislation.  We feel that’s the wrong approach.  Time will tell.

I feel there has to be an international dialogue about these issues.  The creative economy is going to become increasingly mainstream as an economic driver, particularly for the UK and the USA.  The competitive advantage of high quality content in English is a huge opportunity, but it is critically linked to finding the business models that work.  Those norms should be established internationally, rather than each country coming up with its own way.  I will be looking for individuals in the new US administration in January, in order to have a serious dialogue about what should be the UK and US response to this, rather than have everyone grappling on their own.  It has to be done internationally, given the way in which the internet works.

We need to move into a different mindset with regards to the online world.  The internet began in a spirit of being ungovernable and “can’t be regulated”  and “you can’t bring order to it”.  We have to have rules by which this system is operating and serving the public interest; copyright is in the public interest.  If we can’t find a solution, then Britain and the US is wiping away a huge competitive advantage in the future, and depriving future generations of that creative strength that we have always had enjoyed.

We are trying to change the behaviour of the 80 per cent.  We can do this by sharpening our message in education in schools.  But there has to be an enforcement side in this, otherwise it won’t work.

The ISPs can capture more value and at the same time ensure how their network is being used.  Capacity is a real issue, especially with the growth of video sharing and so-on.  They too will have a vested interest in solving this.

It has to be done by pressure remaining and by solutions being found that shore up this vital industry for years to come.


It’s interesting to hear what you said about the importance of copyright to the survival of the industry.  Obviously, the more the government can do to protect copyright, the better.  How do you square that with the government’s decision not to support the European directive to extend the term of copyright for performers?

Andy Burnham MP:  There is no international consensus about the proposals, a mixed set of views.  There is a difference of perspectives within government on this debate.  I see it as my responsibility is to represent the artists.

Most of the industry I think would like you to support it.

Keith Harris (chair): It is a big debate, but I’m afraid we don’t want to get side-tracked.

Andy Burnham MP: It’s not a finished issue within government.  The debate is still live, and we will respond in due course.  Read into that what you like.

Has the current financial situation and the solutions that have been sought made your job any easier in terms of finding new solutions for the industry?  Is the Government now better disposed to intervene to prevent market failure than before, and if so does that help you?

Andy Burnham MP: That’s a very good question.  The creative economy is moving mainstream.  In the North-West, a private organisation is investing £3 billion in Media City, an incredible investment in the creative economy.  This is changing.  The debate has changed as the year has gone on.  On any basis this has to be fundamental to our cultural traditions but also to our economic strength.  There is an alignment of interests.  What I think is lacking is the international dialogue; there will be no durable solution without this.

The big thing is to take some of the solutions we find, following the MOU and the McCreevy proposals etc., and make them stick internationally.  That’s an opportunity in terms of the way the world has changed.

There was a time when people were caught in the headlights over the internet, but they can’t be like that if this is the thing that’s going to dominate our lives for the next 50 years.  Rules have to be created to preserve the public interest.  We’re not talking about curtailing of freedom of expression, but preserving the public interest.

How would you define success for the MOU?

Andy Burnham MP: The terms of the MOU call for a “substantial reduction in illegal downloading within two to three years.”  I know that time scale might seem a little leisurely for some parts of the music industry.  What we’re doing is trying to move this debate along without  forcing people away from the table.  The next thing on the back of the consultation will be to find an agreement.  If we do this by an agreement we’re likely to get somewhere faster than if we take the French route, although I would recommend you look at that – it’s an alternative model; it might be better than ours; it’s experience we can draw upon.  We still think the right approach now is to get an agreement between all the relevant industries, and back it up with some teeth, in what’s called a co-regulatory code, and go from there.  That will capture the spirit of what everyone wants: the benefits of the internet without the problems.

There was supposed to be some kind of an April deadline for the MOU.  What are the success criteria for April?  Are you looking at the trend rather than achieving certain milestones by then?

Andy Burnham MP: April 2009 was the deadline we set for solutions to be found –  and we will legislate if solutions can’t be found.  Full stop.

Dan Klein: The MOU is good at finding ways to encourage cooperation between the ISPs and the labels/studios.  But if we’re trying to find a third way that deals with what’s really going on in the networks, what happens then is that the ISPs will look towards the labels to pay for it, and the labels will look towards the ISPs.

Is there a way forward for government involvement, and what would that look like?

Andy Burnham MP: We’re still best seen as an “honest broker”.  Our job is to not prescribe the balance or terms of the solution.  We can and will get drawn into the detail, but it is right that we remain asking for a solution to be found.

One ISP said earlier in the year that buses don’t get prosecuted for taking shoplifters to the shops.  I think we’ve come a long way from those kinds of attitudes in a relatively short space of time.

Simon Persoff (Director, Legal & Regulatory, Orange UK):  You mentioned the French approach as being a possible solution.  One of the cornerstones of that approach is termination of internet access.  If it came to it, what is government policy on termination of a couple of million internet access accounts in the UK?

Andy Burnham MP:  We don’t favour that approach.  The MOU represents a significant step forward in a level of engagement to tackle the problem.  When we published our document, Creative Britain, earlier in the year, some of the newspapers covered it saying that a “three strikes and you’re out” policy is to be introduced, and it never was that.  We decided not to go down that route, because we didn’t think we’d win the public support.

The 80 per cent will be prepared to accept that people have to be paid for a day’s work, just as they wouldn’t walk into Our Price and walk away with a CD, and that they should still pay for music being enjoyed even if they perhaps shouldn’t pay as much when the cost of distribution isn’t what it used to be.  We are pursuing a different approach that the hard line legislative approach, but if all else fails, then all options have to remain in play.  If more voluntary discussions don’t work then there will come a time when we have to look at other options.

Do you not think that without a workable solution, you run the risk of the two biggest content creating nations pressuring the content-consuming nations into some sort of settlement that they won’t appreciate?

Andy Burnham MP:  We haven’t started the international debate in a meaningful way.  The answer is not asking people unfairly to pay through the nose but just asking a fair price for content provided.  What I keep saying is that powerful seeds planted at the start of the internet now need to be uprooted.  A 1996 speech at the Davos Conference by one of the internet pioneers said explicity, “We’re creating a space where governments can’t go, where legal concepts of property don’t apply and there is total freedom of expression.”  It was ideologically ultra-libertarian, and audacious and intelligent.  But when something becomes so mainstream, the government has to protect the public interest.  The public interest and the interest of the weak can get run over in that environment where there aren’t rules to protect those who need to make a day’s living.

I’m hoping to go to Davos next year and say that we need new rules.

A lot of the language in the MOU was about people voluntarily agreeing a sanction system, basically to prevent people from file-sharing.  Is there anything the Government can do to encourage industries to develop new models instead?

Andy Burnham MP:  I think so.  We’ve got to see how it develops.  I think it’s better as an industry-to-industry situation, and one that has the Government simply saying there has to be a solution.  When two industries can’t agree you get the worst of all possible worlds with government jackboots enforcing a solution.  Legislation will not be the panacea, and may not get there as effectively as industry talking to industry.  We need to resist wading in to say it’s got to be like this or that.  Much better to have people like Feargal Sharkey, who’s here tonight, saying, we think this is do-able, practical or acceptable and won’t put young people off music: that strikes the right balance where people on both sides say it is fair and reasonable, and we then put the rules in place to make it stick.  I remain convinced we will find a solution.

Will Page (Chief Economist, MCPS-PRS Alliance):  It is the World Wide Web and so it is a World Wide problem.  Radiohead developed a world wide one-stop-shop for all of their copyright in 2007, ten years after music started moving around the World Wide Web.  What works with the French three strikes policy may work very well in France.  It’s not the case that if it works there it will necessarily work here.  There are structural differences between countries in terms of the way the telco systems are set up in this country compared to anywhere else in Europe.  that’s a really important difference.

A colleague at IFPI told me that in Spain, they say you can no longer break a new band, the situation is so bad.  So, it made me think, at what point will it no longer be worth investing in new talent?

I work with Eric Garland [Big Champagne].  He said that everything we have going on in the UK, with the MOU and consultation and MusicTank events is incredible.  In America we have none of that.  They just say, I’m the dumb pipe, screw you.  If people are cynical thinking this is all just a talking shop, consider the counterfactual, the American ISPs saying that.  Consider how far we have come.

Andy Burnham MP:  We have an opportunity with the new administration in the US.  They don’t have a culture minister in the states, but I think we have an opportunity to open up another kind of dialogue on this.  Obama has talked about the creative economy on his campaign; it wasn’t reported much in the headlines here, though.

I made this a priority when I came in, and who knows how long I’ll be in this job, but I am determined to see if we can bring these things to a conclusion.  It might not bring everybody what they wanted, but it’s got to be a significant step forward.

I should take back what I said about being ripped off by the music industry.  I don’t want to put a downer on the industry in any way, shape or form.  The reason I say comments like that is that I remember Valerie Singleton smearing marmalade on a CD on tomorrow’s World and saing, “this will last forever.”  Maybe it wasn’t as easy to enjoy music when we were young, but I think if you get the right balance between keeping the joy of music alive for young people but also educating them about reasonable recompense with their mum and dad paying through their ISP subscription.

Richard Mollet (Director of Public Affairs, BPI):  To take the Dan’s comments first.  The MOU isn’t just about models.  Enforcement is important.  I’m pleased to see that emphasised.

It’s about which business models, not which model.  We at the BPI tend to be agnostic about how to answer the key question here.  We want the best commercial environment for our members and that’s why government intervention is so important.  There has been a change of tone and we have seen much more engagement from the ISPs than we would have dreamt of at the start of the year.

It’s great that the Government has come into the room.  The co-regulatory approach that’s outlined in the consultation where you can have agreement that’s backed up by legislation is good.  It’s the Government’s preferred approach and it’s certainly ours.

Simon Persoff:  I represent the ISPs, so I’m probably the only one in the room with that perspective.  You’ll probably expect us to say, “we’re the dumb pipe, screw you” (!).  We have a pretty good working relationship with the music industry.  We sell approximately 300,000 songs a month via our mobile and fixed line sites.  We have library of over one million tracks that we offer to customers.  We sponsor Glastonbury.  We do Orange unsigned acts, which I’m sure you’ll know about.

Our starting point is, something needs to change.  What can we do that protects our own financial position, that protects the music industry, and protects the customer?

It’s a shame that in all the discussions that have been facilitated by Ofcom and the Government there has been no representation of any customer interest groups.  ISPs and the music industry are incentivised to make an agreement that naturally won’t be in the best interest of customers.

What do I think of the whole MOU process?  I agree that without government intervention we wouldn’t be where we are now.

We also have to appreciate that what’s being discussed is to an extent promising but to an extent also worrying.  The BPI comment summarised it well.  The music industry and rights-holders generally still see the focus to be on enforcement, and enforcement for them is unfortunately still “three strikes and you’re out”.  The ISPs are saying we want the focus to be on new business models.

The way to solve this problem is to incentivise ISPs commercially to do something.  On the fixed line, we make almost zero money from music.  It costs us a lot.  The one per cent of our customers using 20 per cent of our network is not a statistic I’m familiar with.  We don’t know the extent to which peer-to-peer traffic is lawful or unlawful but I can say that about 30 per cent of customers use 85 to 90 per cent of our bandwidth.  We haven’t as an industry found a way to monetise that.

That undermines our own music download services and costs us a lot in network capacity.  My ideal solution would be to find out how we can get a slice of that pie.  If we can get a slice of the pie then we will be naturally more incentivised commercially than if the current position continues.

At the moment it is difficult to do a deal with the music industry to wholesale content.  I would like to think that the MOU would be the perfect time to develop a system where we will have a revenue sharing agreement.

The discussions going on around principles two and three have been saying customers already have a great choice on offer, so we should focus on enforcement.  The underlying problem is that customers find it easier and cheaper to get music illegally from a peer-to-peer network than by legitimate means.  We see rights-holders selling to our customers directly – as they are entitled to do – but this further undermines ISPs trying to get into the music industry.

Rather than saying there’s nothing wrong with the current situation – which, to put it bluntly, is a way of government protecting a dying business model – we should say that the current music industry business model has not fully embraced the digital world.

It’s not government’s job to prop up an industry that isn’t willing to evolve.  If they do want to evolve then we are there, and willing to work together.  I don’t think ISPs will voluntarily go as far as to terminate internet access.  I think it’s an absurd position that the music industry is taking, wanting to cut off their loyal users.  Surely they can find some commercial model that works; it’s sending a negative, amateur message to the customers, that infringement can only be dealt with by disproportionate and draconian means.

As of today I am not confident that commercial solutions will be developed between the two industries.  I don’t think the government has any appetite to get involved.  Music industry groups are going to find it difficult to have any kind of collective negotiation, for competition law reasons.  I accept that that is a compliance issue.

We’ll sign up to the MOU, we’ll send out letters, but will it address our 85 per cent?  I’m not convinced that the measures I’ve seen today will do that.

Will Page:  When you get given numbers such as £163 million of new business, what does that mean?  It probably means £100 million to the labels, £10 million to the various collecting societies and organisations, but that’s so you understand what that means as a songwriter, artist, label, taxman even.  The conversation seems to be about cleaning up networks, and there’s nothing wrong with that, but if that’s what Detica can do, how does that stimulate new sales?

If 10:80:10 works in theory, then how does it apply to something that’s been persistently around 10 years?

70 per cent of people on iTunes don’t buy music.  80 per cent of the music on one large digital music provider sold zilch.  We’re offering everything but only a small chunk is being used.  Recent research using anti-virus software showed that 1 in 4 PCs is running iTunes, but 1 in 5 has Limewire.

Hopefully that will help illustrate the problem.

Richard Mollet: To suggest that all we [the BPI] want is disconnection is gross mischaracterisation.  We have put a huge amount into finding sanctions and remedies that may be used against people who have infringed copyright.  You are aware of that document.

To suggest that we believe there is nothing wrong with the current system, is again wronG.  We know there is and that’s why we are here.  We don’t see the world through the lens of enforcement.  There were three main points in the MOA: education, new business models and enforcement, and we are pursuing them all with equal vigour.

Dan Klein:  I can compliment the BPI and Orange in one breath here.  You have to salute the BPI for engaging in an enforcement agenda that works.  Enforcement has to be there.  The ISPs will put money in if they are going to get money out.  They will invest in the music industry if they are going to get money out.  The industry is in decline so what is the point for them to invest unless they are going to produce some serious profits?

If we’re not making money then the ISPs are not going to invest in it.  There are ISPs that are willing to invest serious kit in the industry, but only if they get a serious payback.

We’re not suggesting cleaning up the network at all.  We say you need to look at what’s going on, understand it, and use that data.  We’re not saying we need to halt the activity that’s occurring, we’re just saying we should be making money from it.

We’ve had ten years of downloading of unlicensed music and everyone under 30 now downloads music.  We should embrace peer-to-peer, and find out business models that work in that space.

Part 2
Simon Persoff: A good point raised by the BPI: there are seven remedies to tackle persistent copyright infringement mentioned, one of which is termination.  I know they’re looking at them all, but I think the one they really want is termination.

The bottom line is I don’t think those seven remedies together are going to monetise the problem.  If we implement these seven measures, are people going to just stop downloading and walk into HMV instead, to buy the physical product again?

What percentage of that without new models involving ISPs is actually going to happen?

We haven’t talked about cost.  How much will it cost to implement something on the network?  Who will benefit?  What’s the incentive for the ISP?  Shouldn’t the person who benefits from any measures taken be the one to pay for them?

We risk criminalising and alienating something like 7 to 30 million people.  It’s unlikely that that revenue will go back to rights holders.
I’m reminded of the quote from Yes Minister, about the difference between “brave” and “courageous”: “’brave’ is something that loses you votes; ‘courageous’ is something that loses you the election.”

Richard Mollet: The idea is not that those reductions  are achieved by those seven measures alone.  The MOU has three core principles.  What if you circumvent sanctions?  The measures would be subject to review.

On the cost point: rights-holders already spend a lot on copyright infringement.  We’re in the game already.

Dan Klein: Coming back to the consumer.  We asked, was the consumer represented?
The consumer feels that the value of music is zero.  you’re not going to change 15 years’ behaviour overnight.
If we pick an ISP and say the solution is  £100 million per annum, with £20 million of hat for the ISP, that’s not going to happen if the customer wants to pay zero.

Looking at Orange…  The music offering is paid for by their retention budget.  Music are not interested in selling you music on a phone.  That tells you where the value chain is. With films, the perceived value is not yet zero, so the film industry have a lot to lose.

Simon Persoff: A clarification: we are interested in selling music, because it’s part of our vision as a communications provider.  We benefit from reduced churn, but it is simplistic to say we are not interested in selling music.

A different question is, what margin can we make on the music and is it

But for the rest of the business, would we be selling music?  No.  But that doesn’t mean we’re not interested in selling.
Will Page:  How profitable is music?  The digital market is not flourishing because there isn’t enough profit to be made.
In the context of enforcement, how is it going to generate money?

Supply side economics: on Oxford Street, there are suppliers of lots of goods, but it’s getting harder to find music.  Who is supplying music?
The purpose of collective licensing has a role in supplying music in a convenient way that makes the consumption of music easier.

Q: How are we going to resolve the problem of frustrating the consumer by the music not being available?  How are we going to resolve this problem?

Keith Harris (chair): In the new European copyright legislation there is a whole section on orphaned works, that is, works where the creator cannot be identified.  That is being addressed.

Q: Only 15 per cent of the 97 million on Gracenote are available to buy digitally.

Richard Mollet: There are problems with orphaned works, but it is in the interests of the industry to make as much as possible available.

Q: The fact that people cannot find content they desire on legitimate services is often cited by piracy focus groups as a reason for using them, that and the higher quality.

Dan Klein: The nature of the way the labels are digitising their back catalogues is by its nature slower than the population of the world doing it for them.  So the quality is better on Pirate Bay than it is on iTunes, for all sorts of reasons.  We need to harness that.

Q: When was it that a single track would register with the Official Charts Company as a download with no physical counterpart?

Will Page: I think it was early 2007.  It’s easy to criticise record companies for being slow with these things, but it’s unfair to then criticise the work we are doing now.  Let’s look at the future and try to get where we want to be, working together with ISPs.

Q: People are prepared to pay for music if the service is compelling.  People will say they couldn’t have imagined paying for water and now they pay £1 per bottle.  Pirates are prepared to pay but the services are not there.  Is there a margin the industry is prepared to share with distributors to help them innovate and market themselves?  It’s the margin that is available that is killing innovation.

Simon Persoff: We want the MOU to work.  The problem is that on its own the enforcement measures aren’t going to work.  That’s the shared view apparently.  I’ve learned that, which is good, since one of the key points of the MOU was education.  Do I think there is sufficient margin?  If someone came up to HMV and said, “we want you to sell our product in your stores for zero margin, but once they’re in the they might buy something else.”  What would they say? A two-fingered salute.  There is sufficient margin in that £163 million (or whatever) for everyone in the chain.

The starting point seems to be, rights holders want to be back in the position they were in before piracy started, where they took the lion’s share of the revenue.  I say well, fine, but you’ve got to incentivise us to go above and beyond the call of duty.

We can shout very loudly to our customers, buy music from us.  We have an existing billing relationship and so on.  We the ISPs are willing to help you stop piracy, but it has to be predicated on proper commercial deals.  Otherwise the government will legislate, which will work for about five minutes, and alienate customers.  I pray this works, because that’s the worst possible option.

Will Page: There might be a market solution to this problem that doesn’t require too much intervention, along the lines of carbon-emmissions trading, which is an application of the coast theorem – in which fishermen sell the right to pollute their coast to an oil refinery, hence finding the right balance between their own and the refinery’s economic interests.

Dan Klein: Orange has contracts with their customers, that’s incredibly important.  They understand them and have data on them.  The old model of selling a CD means that the label is disconnected with the customer.  The internet provides an opportunity for the labels to get in direct contact with the customer, so they can contact them and make money from them.

Simon Persoff: At the last session Jim Gelcer said iPods hold 40,000 songs but no one is paying $40,000 to fill them.  Why look at ISPs as the only negative externality (the polluter in the coast theorem).  There is also the MP3 player manufacturers, software manufacturers and so on.  All of these are a partial cause of the negative externality.  Another person is the music industry, that has harmed.

Keith Harris (chair): In 1985 I joined an ISP run by British Telecom.  In 1987 they wrote to me and said, we don’t see a lot of future in this, so we’re passing all our customers over to Compuserve.

Q: In terms of a dying industry, when it has eventually died, what will be the effects on Orange, and would you then be interested in contributing to the supply?

Simon Persoff: It would be an absolute travesty, and I don’t want to wait that long.  Music is an integral part of the communication and services suite that we sell to our customers.  I see no reason why it is inevitable that the industry should die.  We have a number of successful partnerships on the mobile site with music companies and I hope it continues into the fixed site.

Q: I am involved with the songwriters’ association of Canada.  To what extent are the copyright holders willing to let go of the copyright in the manner that?

Dan Klein: There does not appear to be measurement of what’s going on.  People don’t know what to do because they don’t know what’s going on.

Keith Harris (chair): That’s a good place to end.  We have established that we have a long way to go, and that there is no one silver bullet to solve it.