Copyright Unbalanced: From Incentive to Excess (4 page)

The entertainment industry relies heavily on the notion that piracy devastates artists. Yet it turns out that piracy primarily hurts legacy media firms reluctant to embrace the digital revolution; artists willing to adapt to the new environment, and to the consumer desire for more direct relationships with artists they admire, have flourished. According to the Bureau of Labor Statistics, the number of independent artists increased by 43 percent from 1998 to 2008 as it grew easier to generate income without signing with a major recording company.
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This independence might prove particularly advantageous to artists who appeal to culturally conservative consumers, a market niche that the big media companies tend to neglect.

Essentially, Big Media are trying to enlist the federal government in an effort to save their failing business model under the pretense of protecting artists and workers. Like the Big Three automakers, these companies want a bailout. Until recently, they had reason to think they’d get one. After all, while the entertainment industry failed to persuade the federal government to ban the VCR in the 1980s, and the MP3 player in the 1990s, it has managed to deploy government power against a number of similarly promising web-based technologies. To be sure, many of these technologies can indeed facilitate copyright infringement, and more aggressive enforcement might reduce infringement. But it is far from obvious that taxpayers have an unlimited interest in reducing infringement, particularly as the strategies for doing so grow ever more expensive and intrusive.

Yet Hollywood contributes vast sums to political candidates, particularly on the left, through the influential lobbies of the Motion Picture Association of America and the Recording Industry Association of America. For decades they won almost every political battle they joined, in part because they tended to strike deals behind closed doors. The winning streak, however, has come to an end.

At the outset of the most recent legislative debate over online piracy, Hollywood was poised to extend its flawless copyright-expansion win streak. Under the guise of blocking foreign “rogue” websites, the Protect IP Act, or PIPA, an earlier Senate counterpart to SOPA, achieved levels of bipartisan cosponsorship unseen in all but 19 other Senate bills (out of 1,900), according to OpenCongress.org. In May 2011, the legislation passed the Judiciary Committee by voice vote, without hearings. There was no reason to think that the House version, which became SOPA, would be any different.

But when House Judiciary Committee chairman Lamar Smith (R-TX) delivered the bill in late October, alarm bells went off in start-ups and venture-capital firms throughout Silicon Valley and New York City. Brad Burnham, a cofounder of Union Square Ventures and the first institutional investor in Twitter, helped mobilize the early protests, which would inspire the larger blackouts of Wikipedia, Reddit, and more than 100,000 other websites in January of 2012. “The infrastructure of the Internet, chips, routers, and microprocessors were conceived and created a long way from Washington, and the entrepreneurs and investors who built those businesses liked it that way,” Burnham reflected. “Politics had little impact on this insulated world.” But slumber was no longer an option: An industry that had shunned lobbyists now paid the price. The legislation placed a business model that allows users to freely share content without prescreening or approval (the basis of the modern Internet) in legal jeopardy. (The original version of SOPA aimed to criminalize sites taking “deliberate actions to avoid confirming a high probability” of copyright violations.)

December’s House markup hearings fully displayed Congress’s blithe aspiration to regulate an industry it did not understand. SOPA proponents professed ignorance of the Domain Name System, a fundamental piece of Internet architecture they proposed to radically alter. North Carolina Democrat Mel Watt, one of the bill’s early sponsors, memorably confessed, “I’m not a nerd.”
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To the tech community, stopping SOPA became a life-or-death struggle. On top of its DNS censorship provisions, SOPA sought to require search engines to censor results pointing to sites merely accused of piracy and grant legal immunity to Internet Service Providers that would voluntarily block access to accused websites.

Ultimately, the indictment of SOPA as a complex regulatory boondoggle may prove more instrumental to its collapse than the Internet’s cries of censorship. So suggests Republican lawmakers’ decision to dump the bill en masse.

Like most examples of Beltway cronyism, SOPA was the product of an out-of-touch bipartisan lobbyist elite, who understood precious little about the networked and decentralized medium they proposed to regulate. This elite badly underestimated the political power of an “Internet public” connected by social media and smartphones. A guerrilla force of techies and populists, ranging across the political spectrum from MoveOn.org to the Tea Party Patriots, joined forces to mount an unconventional assault on Hollywood’s lobbying arm, which had spent $94 million lobbying for copyright legislation in 2011. The result: the January 18 web blackout that prompted millions of calls to Capitol Hill, forced dozens of lawmakers to switch sides, and consigned SOPA to the dustbin of history—for now.

After both sides of the SOPA debate were heard, conservatives were quicker to rally to the side of the rebels. At one point, hours into the Internet blackout, 26 of the 29 legislators who switched sides were Republicans. Minnesota Democrat Al Franken, who had fashioned himself the Senate’s chief defender of the “open Internet,” e-mailed supporters defending the Protect IP Act in the name of “middle class workers—most of them union workers,” who work in copyright-dependent industries.
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Franken, himself a card-carrying member of the Screen Actors Guild, represented in microcosm the coalition of Hollywood and labor threatened by the disruptive forces of technology. Senator Chuck Schumer and Representative Kristen Gillibrand, both New York Democrats, privately seethed at Republicans who withdrew their cosponsorship, among them Florida Republican senator Marco Rubio.
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Behind the scenes, Republicans used the piracy debate to register their displeasure at Harry Reid’s imperious management of the Senate. When Reid put the Protect IP Act on the Senate floor schedule, the bill’s main Republican proponents were not even consulted. A few days before the scheduled floor vote, a group of Republican senators, including chief Republican sponsor Chuck Grassley and Utah conservative Mike Lee, called on Reid to delay consideration of the bill indefinitely.
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Republican opposition to SOPA, though influenced by many factors, is rooted in conservative skepticism about the imposition of regulations rigged to favor powerful corporate insiders. This skepticism wasn’t on display for most of the Bush era, when many in the GOP reconciled themselves to being part of a pro-business rather than a pro-market and pro-freedom political movement. Public hostility to the Wall Street bailouts, and the rise of the Tea Party, provided a useful corrective—and conservatives in Congress now wish to be on the side of consumers and the entrepreneurs who serve them, rather than that of crony capitalists who use state power to extract rents.

Stifling Internet innovation is not restricted to media companies; rather almost every established industry that fears disruptive change has sought to build barriers to block Internet-enabled competition. Real estate agents, mass-transit agencies, cab companies, and purveyors of wines and spirits are just a few of the special interests that have tried to regulate away competition by web entrepreneurs.

Perhaps the most important example of an Internet-phobic industry is the education sector. All over the country, teachers’ unions fight bitterly against online-education efforts that promise to lower the cost and improve the quality of instruction. Traditional colleges and universities wage rearguard actions against online universities that offer “all you can eat” pricing plans, which allow students to take as many courses as they can handle for a flat fee. The medical profession, similarly, is reluctant to embrace Internet-enabled technologies that empower patients and in the process drive down costs. Sectors such as health care and education, in which political imperatives trump market competition, are most plagued by inefficiency. Fortunes are made not by meeting consumer needs, but by securing political favors.

The Internet represents a radical alternative to crony capitalism. Larry Downes, a right-leaning technology analyst and one of the most insightful chroniclers of the fight against SOPA, described what he calls “the political philosophy of the Internet”: “Its central belief is the power of innovation to make things better, and its major tenet is a ruthless economic principle that treats information as currency, and sees any obstacle to its free flow as inefficient friction to be engineered out of existence.”
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The belief he describes is rooted in the Internet’s open, meritocratic nature. And it is a belief very much in keeping with core conservative values.

The Internet, and the phenomenal success of technology entrepreneurs like Steve Jobs, Mark Zuckerberg, Sergey Brin, Larry Page, and countless others, are vivid examples of markets at their best. The world’s most deregulated industry has, not coincidentally, seen corporate empires rise and fall with astonishing speed. Yet the chief beneficiaries aren’t Silicon Valley billionaires. Rather, they are citizens, workers, and consumers with the power to choose new ways of living, working, and consuming.

We have described the Internet as our Hong Kong, our beacon of economic freedom. But whereas the Mainland swallowed up Hong Kong, there is a chance that the dynamism of the Internet could take over and revitalize our overtaxed, overregulated, moribund economy.

Achieving this larger goal will require a more ambitious set of reforms. The anti-SOPA coalition, for all its virtues, was ultimately a negative coalition that aimed to prevent a change its members perceived as destructive. What we need now is a reform movement devoted to taking on other barriers to innovation, like the glut of software patents and the expansion of copyright protectionism. In an era of sluggish economic growth, this could be a potent way for conservatives and libertarians to connect the cause of economic freedom to the promise of a more prosperous future.

NOTES

1
.    Jacques Bughin et al.,
Internet Matters: The Net’s Sweeping Impact on Growth, Jobs, and Prosperity
, May 2011,
http://www.mckinsey.com/insights/mgi/research/technology_and_innovation
/internet_matters
.

2
.    Ian Bremmer,
The End of the Free Market: Who Wins the War between States and Corporations?
(New York: Penguin Group, 2010).

3
.    Barack Obama, “State of the Union 2012: Obama Speech Transcript,”
Washington Post
, January 24, 2012,
http://www.washingtonpost.com/politics/state-of-the-union-2012-obama-speech-excerpts/2012/01/24/gIQA9D3QOQ_story.html
.

4
.    Joseph Henchman, “More States Abandon Film Tax Incentives as Programs’ Ineffectiveness Becomes More Apparent,” Tax Foundation, June 2, 2011,
http://taxfoundation.org/article/more-states-abandon-film-tax-incentives-programs-ineffectiveness-becomes-more-apparent
.

5
.    Stewart Baker, “Exclusionary Rules,”
Wall Street Journal
, March 26, 2004,
http://online.wsj.com/article/SB108019177856065188.html
.

6
.    Josh Smith, “White House Reports Increase in Copyright Enforcement,”
National Journal
, March 30, 2012,
http://techdailydose.nationaljournal.com/2012/03/white-house-reports-increase-i.php
; “2011 U.S. Intellectual Property Enforcement Coordinator Annual Report on Intellectual Property Enforcement,” March 2012,
http://www.whitehouse.gov/sites/default/files/omb/IPEC/ipec_annual_2011_
report.pdf
.

7
.    Alex Tabarrok,
Launching the Innovation Renaissance
(TED Books, 2011).

8
.    Bill Gates, Microsoft internal confidential memo, May 16, 1991,
http://www.std.com/obi/Bill.Gates/Challenges.and.Strategy
.

9
.    Joe Karaganis, “Copyright Infringement and Enforcement in the US,” American Assembly (Columbia University), November 2011,
http://piracy.americanassembly.org/wp-content/uploads/2011/11/AA-Research-Note-Infringement-and-Enforcement-November-2011.pdf
.

10
.  Joe Karaganis, ed., “Media Piracy in Emerging Economies,” Social Science Research Council, 2011,
http://piracy.americanassembly.org/wp-content/uploads/2011/06/MPEE-PDF-1.0.4.pdf
.

11
.  US Census Bureau,
Statistical Abstract of the United States
, 2012 (Washington, DC, 2011), 716.

12
.  Anita Elberse, “Bye-Bye Bundles: The Unbundling of Music in Digital Channels,’’
Journal of Marketing
74 (2011): 107–23.

13
.  Barry Kernfeld,
Pop Song Piracy: Disobedient Music Distribution since 1929
(Chicago: University of Chicago Press, 2011).

14
.  Michael Masnick and Michael Ho, “The Sky Is Rising: A Detailed Look at the State of the Entertainment Industry,” Corporate and Communications Industry Associates, January 2012.

15
.  Ibid.