P2P Music Distribution: a Burden or a Blessing?

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Traditions and habits shaped the music business. In the online environment, new players, some of them are peer-to-peer system providers, are entering the arena and struggling to obtain a position in the value chain. They may displace other actors who currently play a major role. The law - in particular copyright law - determines to a large extent whether they will succeed. In this paper, the question is addressed whether the law should support record companies in their efforts to remain the key intermediaries in the music industry. Additionally, different legislative approaches are discussed which might ensure that artists are rewarded for p2p distribution and that competition may evolve in the area of online music distribution.

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To determine whether the public sharing of music over networks like Napster should be considered copyright infringement, we must first conclude that digital works should be entitled to copyright protection. Professor Ku argues against copyright protection for digital works because the economics of digital technology undercut prior assumptions about the efficacy of a private property regime as a remedy to the public goods nature of information. This becomes clear when we separately examine the two interests served by copyright, the creation and the dissemination of works to the public. By questioning the conventional wisdom that these interests are aligned, Professor Ku reveals that the argument for copyright is primarily an argument for protecting the distributors of content in a world in which "middlemen" are no longer necessary. Copyright is no longer needed to encourage distribution because consumers, themselves, build and fund the distribution channels for digital content. With respect to the creation of music, Professor Ku argues that the exclusive rights to reproduce and distribute copies currently provide little, if any, incentive for creation, and that free music and digital technology may in fact increase the financial rewards to artists. Consequently, the exclusive rights to reproduce and disseminate digital music under copyright cannot be justified. To the extent that additional incentives are considered necessary, he proposes the Digital Recording Act that would fund artists through a statutory levy scheme with the distribution of funding tied to aggregate Internet downloading or use. The DRA is superior to copyright because it encourages creation while providing information about consumer preferences without the market-distorting effects of a private property regime.
The relationship of copyright to new technologies that exploit copyrighted works is often perceived to pit copyright against progress. Historically, when copyright owners seek to eliminate a new kind of dissemination, and when courts do not deem that dissemination harmful to copyright owners, courts decline to find infringement. However, when owners seek instead to participate in and be paid for the new modes of exploitation, the courts, and Congress, appear more favorable to copyright control over that new market. Today, the courts and Congress regard the unlicensed distribution of works over the Internet as impairing copyright owners' ability to avail themselves of new markets for digital communication of works; they accord control over those markets to copyright owners in order to promote wide dissemination. Copyright control by authors, particularly those excluded by traditional intermediary-controlled distribution systems, may offer the public an increased quantity and variety of works of authorship.