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On Piracy

I'm walking on one of the footbridges over Nanyou Highway in Shenzhen, a city in mainland China about an hour from Hong Kong. Shenzhen is a manufacturing center, created 20 years ago on the Pearl River Delta as one of China's first “Special Economic Zones.” It's the fastest growing city on earth, and just about everyone here has a job, which is rare in China. I'm here to work on a feature film, but like much of the population I'm also a part-time criminal.

Tonight, my mission is receiving stolen goods. My co-conspirator, a local artist, is taking me shopping for bootleg DVDs. His supplier has a reputation for stocking anime titles. I'm looking forward to dark alleys and whispered passwords, but I'm about to learn that there is no black market for pirated goods in China. It's all out in the open. In fact, the real rarities in Shenzhen are authentic DVDs and CDs.

At 7:30 on a weekday night, Shenzhen is a nearly continuous mall, a pulverized constellation of glowing signage lighting endless shops and department stores. This is Disney's Epcot vision in reverse, an imitation of the West where restaurants have names like Manhattan Nite and stores offer average to better-than-original counterfeits of brand name everything from cosmetics to Gucci leather bags.

Back in the United States, the Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) are in their fifth year of warfare against intellectual property theft. As in a real war, the majority of combatants are younger than 30 — at least on the pirating side. This is a second front in the conflict, the result of an advanced weapon created by college dropout Shawn Fanning. His file-sharing program, Napster — Fat Man in this metaphor — is a free application that took advantage of the Web as a distribution system and the ability to copy files with the ease of turning on tap water. Detonated in 1999, Napster caused a revolution. File sharing is now part of a young web surfer's assumed rights, and despite high-profile legal attacks by the RIAA and MPAA, file swapping is still going strong.

In China, the piracy economy flourishes without menacing corporate rhetoric, legislative urgency, or apparent cultural guilt. My first direct personal experience with this unashamed bootleg trade was at a lecture I gave at Shanghai University. An animator is introduced to me as one of my biggest fans. He wants me to sign a couple of books I've written. I'm handed a pen and the books, except that these are photocopies held together by spring clips. My biggest fan smiles at me, I smile back. He could have bought them: My first book has been translated into Chinese and is readily available. As far as I know, the government has not banned my writing. I sign the books and think about the VHS rental tapes I duped in the 1980s. Unfair is unfair.

Bootlegging is not a new phenomenon. People have been sharing their favorite software with friends since desktop computing began in the mid-‘80s. This often served the purpose of a software developer's efforts to gain market share. Adobe Photoshop became the de facto standard for many reasons, not the least of which was a ubiquity that was built in part on illegal sharing of software, the equivalent of good word of mouth recommendations for movies. Some software companies believe that eventually the freeloaders buy software they previously copied for free, if only to get product support, documentation, and upgrades. Some software companies exploit this with a legal alternative: educational versions of software at a fraction of the regular retail price with the limitation that it only be used for non-commercial work.

File-swapping advocates offer a variation of the viral marketing argument that worked for software: File sharers who are exposed to a new artist's work buy legitimate CDs by the same artist. This view envisions file swapping as the new radio, a marketing scheme based on free music that eventually leads to sales.

The record industry rolls its collective eyes at this and points to the fact that it's not unusual for high school and college students to fill up hard drives with hundreds of tunes, or the equivalent of approximately 50 CDs. This is the math that copyright holders use when seeking damages. The logic is questionable. The sheer ease of downloading tunes surely encourages a hoarding mentality for amassing collections far larger than the average college student could afford to buy.

All told, the downloading debate doesn't yield easily to simplistic models based on past paradigms. In fact, the whole notion of economics in the digital age is a contentious subject. Some see Adam Smith at work; others see Che Guevara.

The theft vs. marketing debate aside, CD sales have fallen in the past few years, about 10 percent, according to the RIAA — more than enough to demand a scapegoat — and file swapping is the logical fall guy. A recent study by researchers at Harvard and the University of North Carolina, however, suggests that there have been other downturns in the record industry in the ‘70s and ‘80s, before file swapping was an issue. The research offers a statistical analysis that focuses on the relationship between popular downloads and the sales of albums they were pirated from. The study tracked illegal downloads for 17 weeks in 2002, concluding that file swapping has a miniscule negative effect on sales.

There have been other studies based on interviews that build a case for the opposite point of view, and it's clear that there must be some reduction in sales. Given the fact that the entertainment industry point of view dominates the debate — and the attention of the federal government — economic damages from file swapping have almost certainly been overstated, probably by orders of magnitude. The self-interest driven statistics and lobbying in Washington have worked: The RIAA and MPAA have successfully enlisted law enforcement and legislative support, responding to file sharing with a scorched earth policy.

The centerpiece of the entertainment industry's counter-attack is the 1998 Digital Millennium Copyright Act. The DMCA makes it a criminal act to circumvent software protection schemes, whether for the purpose of selling duplicated works or making a backup copy of a purchased work. The DMCA makes no distinction between traditional fair use of electronically published work and theft for profit, whether or not the work has been purchased legally. This eliminates the presumption of innocence that characterizes most of our judicial system. (Come to think of it, I am probably guilty of copyright infringement as defined by the DCMA, having downloaded news items for this story to my hard drive.)

The initial anti-piracy enforcement team is virtual — a dubiously legal squad of zealous spy bots that scour the Internet looking for the key words from a list of copyrighted songs. If a bot finds a match on a local hard drive, the subscriber's IP address is retrieved but not the the name or address. Up until December 2003, the RIAA requested that subpoenas be served to Internet service providers, forcing them to surrender the names of bot-outed subscribers suspected of copyright infringement. Mass John Doe subpoenas could be issued by a clerk of the court without having to file a lawsuit first.

Throughout 2003, hundreds of subpoenas were sent to ISPs. This led to several falsely accused computer users, as well as many properly identified file swappers violating the DMCA. Each offender received a letter threatening legal action and very stiff fines. The typical deal cut by the RIAA is an admission of a felony and a $3000 settlement, although the actual fines permissible under the new law are much higher.

Bootleg software in an electronics store in Shenzhen, China. Piracy whets the Chinese consumers' appetites for Western products.

On Dec. 19, 2003, the D.C. Circuit Court of Appeals ruled that the DMCA does not permit a copyright holder to force an ISP to surrender the identity or other personal information of its subscribers. This requires the RIAA to file lawsuits, a slower and more costly process. This is, at most, a minor setback, and the RIAA will certainly find new ways to track down pirated material. And the file-swapping enthusiasts have equally dedicated hackers devising better ways to mask user identities through ever more complex file sharing mechanisms.

Recently, in an effort to discourage the practice of surreptitiously shooting copies of movies in theaters with camcorders and making them available on the Internet, Senators John Cornyn, R-Texas, and Dianne Feinstein, D-Calif., introduced the Artists' Rights and Theft Prevention Act, an expansion of the 1997 No Electronic Theft Act. Under the new legislation, having pre-release movies in your possession is punishable with fines up to $250,000 and one to six years in jail. The most controversial aspect of the law is that it is presumptive: no actual copyright infringement need take place. By making prerelease movies available, you can be found guilty, whether or not a file is actually downloaded.

The only positive in the ongoing IP wars is the rise of legal music download sites. The clear leader here is Apple's iTunes, a for-pay online store offering popular tunes for 99 cents and albums for $8 to $10. A bit pricey, but the music is yours to copy. You can't redistribute iTunes downloads but you can burn your own CD compilations. This is a favorite fair use of music for many kids, but currently illegal under the DMCA if you circumvent copy-protection on a legally purchased CD.

The response to legal downloads has been encouraging but has diverted only a fraction of the illegal file-swapping traffic, even after the carpet-bombing tactics of the RIAA. While the recording industry applauds legal downloads, one has to ask why it was unable to do this through its distribution channels several years ago. Virgin Records, Tower Records, Amazon, and other music retailers trail Apple — a computing company — in reaching their own markets. The reason for this is simple: The entertainment industry resists change to a distribution and marketing system that is currently legislated in their favor.

The entire copyright issue is the inevitable result of a far larger ideological war, but not one you are likely to read about. While the entertainment industry wants the file-swapping debate constrained to a black-and-white copyright issue, its customer base is online, trading weblogs, or blogs, exposing the underside of the entertainment industry. Downloaders are part of a highly motivated community that posts the latest judicial, technical, and cultural criticism of media conglomerates. In this sense, file sharing contains an element of civil disobedience: Abby Hoffman's Steal This Book made effective.

This upstart view of things infuriates an entertainment industry that does not want to see its own accounting practices or the broadcast licensing process questioned — typical ideological fodder for blogs from downloaders. The average file swapper is likely to be aware that the record industry is built on the government's choice more than 80 years ago to create a national broadcast infrastructure based on an advertiser-supported system, rather than one balanced by a percentage of nonprofit or public service-oriented stations. Between 1925 and 1934, the newly created Federal Radio Commission embarked on plan that ultimately led to the disappearance of educational radio, which had at one time represented nearly half of the radio stations in the United States.

In effect, the government chose the winners in a non-competitive environment that has evolved into a handful of huge media conglomerates with an institutional advantage over independent competitors. In this regard, the broadcast and record industries operate in a rigged market. The temptation to upend the current structure is capitalistic and very nearly irresistible.

Many file swappers are keenly aware that in the current government-enabled market, CDs that cost $15.95 are not subject to meaningful competition since all the major record labels are part of media conglomerates that own or are owned by major broadcasters or their parent companies. It is nearly impossible for unaffiliated record labels to get significant airplay. Similarly, you only have to visit a few P2P sites to link to stories about radio payola or the failure of the FCC to consider licensing micro-radio stations or to fine stations for not providing local programming.

I'm thinking about this matrix of legislation, power, free markets, and history in a place where file swapping is not a problem. In China, pirated CDs available in stores are so low-priced that downloading free music is not much of a temptation. This aspect of China's ongoing experiment with free markets is a “brave new world,” as envisioned by Jack Valenti. Here, the problem is not file swappers but entrepreneurship at the local retail level.

What the pirate entrepreneurs know is that 1.3 billion Chinese are not going to pay $15.95 for a CD. They are demonstrating (as Apple has done with iTunes) that the entertainment industry distribution and pricing structure is out of date. In China, and quite possibly the United States, volume sales of low-cost CDs might balance the loss of high margins.

Many Chinese entrepreneurs are essentially being introduced to capitalism with an unsecured loan from American copyright holders. The big Western corporations entering China prefer a world of consumers, not competitors. Eventually Asia will be made safe for the large chains through the elimination of independent owner-operated stores. But right now, pirates serve a purpose by spreading Western culture, appetites, and brand recognition at bargain rates.

In April, U.S. and Chinese officials agreed to increase efforts to crack down on piracy of intellectual property and reduce barriers to U.S. technology. While the United States disapproves of China's policy of offering tax incentives to its semiconductor industry while imposing restrictions on semiconductor imports from the West, the FCC underwrites broadcasters by providing free bandwidth to switch to a digital infrastructure under the 1996 Telecommunications Act.

This cooperative effort between the FCC and the broadcast industry extends anti-competitive advantages to broadcasters, allowing them to enter the telephony and data transmission businesses. Ironically, when piracy in China is eventually curtailed, China will be another compliant consumer node at the tail end of a distribution system based on market manipulation.

All these colliding issues come together in the real world on the third floor of an electronics supermarket on a warm night in Shenzhen. I'm meeting with the entrepreneur who specializes in anime DVDs. He leads me down a few nondescript hallways to a stall that is hidden from walk-by traffic. The steel mesh door is covered with flattened cardboard boxes and the interior is about the size of a roomy dog cage, just big enough to hold three utility tables covered with CDs and DVDs. As promised, there is a good selection of anime titles, as well as Finding Nemo, Shrek, Ice Age, and other Hollywood blockbusters. The price is 15 RMBs, or about $2 US. If I buy 10 or more DVDs, there's a discount.

Halfway around the world, friends of mine that worked on Finding Nemo and Ice Age are toiling away on new animated features. The entertainment industry claims these artists are the indirect victims of my bootleg DVD library. I can't help thinking that some of those same artists also have less chance of getting their indie films into the cineplex because the FCC has decided that the airwaves are not a public space, but instead are entitlement programs for a few large corporations.

The FBI, MPAA, RIAA, WTO, and FTC are racing to pass and enforce laws around the world to protect copyright holders — an extension of policies that help insure that copyrights are infrequently in the hands of those who create content.

So I start to wonder if somehow the viral exposure to new artists that file swapping breeds or the open markets temporarily created by street level piracy might in its very unfairness offer more opportunities to content creators relegated to the position of creative guns-for-hire.

I don't wonder for long, because the renegade system I've described is unsupportable. It's a mere eruption of market forces and larceny that provides insight into one of the most important issues facing our industry: that price, access to markets, and copyrights are out of synch and out of date. The market is revealing much about what tomorrow's profitable paradigms might look like if we are willing to look. Reasserting the status quo with an iron fist misses the opportunity to revitalize our thinking and runs counter to the better instincts of an industry that was built on innovation, creativity, and risk.

According to judicial scholar and copyright expert Lawrence Lessig, the motion picture industry was founded on piracy. Thomas Edison held the first camera patents in the United States and sued rivals for patent infringements. Later, he formed the Motion Picture Patents Company and for a while during the silent era controlled distribution through nine producers and one importer. Unlicensed producers were subjected to the strong-arm tactics of the Edison Trust, including violence, confiscated equipment, and blacklisting of theaters that accepted unlicensed product. The movie business came about when the “independents,” as the unlicensed outlaws like Fox called themselves, outmaneuvered the trust. In 1915,the independents were vindicated when the courts ordered the end of the trust as a monopoly acting in restraint of trade. Parallels to today's situation are all too apt.

As my Chinese dealer hands me my pirated DVDs, I think about who the heroes and villains might be here in Shenzhen, or on the grid, or in Washington. The tangle of rights and reason that began in the ‘20s is challenged by technology that changes the stakes and the stakeholders.

The streets here are filled with optimism, conspicuous consumption, survival, and easy money — a chain of desire that reaches around the world and into the pockets of the powerful and entitled. This is the invisible hand of the market momentarily dispensing unintended equity, or maybe just comeuppance.

Piracy is not the result of market manipulation — but a fair market could be an effective defense. That particular option is not on the table, and government-encouraged media consolidation won't end anytime soon. Inevitably, there is war. No side can claim the moral high ground, it's just technological plunder pitted against political influence.

As a paid writer and filmmaker I'm the natural enemy of copyright thieves and a ready defender of intellectual property rights — but not if the eventual peace means a global main street with ideas limited by the narrow self-interest of the surviving warlords.