The Myth and Fallacy of Intellectual Property and a Couple of Numbers

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Introduction

Government used to be a loose coalition between the industrialist/producers and the politicians.

The system worked reasonably well.

We’ll create lots of jobs” – said the industrialists – “if you’ll give us permission to do X and Y so that we can make lots of Z and sell it to the consumers”.

Of course the governments eyeing all that potential PAYE (payroll) taxation from the job creations and the sales tax from the consumer sales – said YES of course we can….

As Governments said YES to development proposals, the work force grew. The population were all employed and everyone was happy. (OK, comparatively).

The shareholders of the industrialists wanted higher returns, the industrialists looked to see where they could cut costs and increase revenues.

The promised jobs turned into requests for government job support handouts….

Alterations in accounting methods to minimise taxation started to appear…..

We’ll fix that said the lawyers… We have a scheme that will take care of it all. We call it the bottom of the harbour scheme.

That one didn’t last long, but the fallout resulted in the Asprey report which recommended a couple of new “policing taxes”;

In 1985 a capital gains tax was introduced and in 1986 the fringe benefits tax was introduced. The primary motivation behind these base broadening measures was to address gaps in the income tax base, which had led to growth in tax avoidance and evasion activity.

So the “bill” for the lawyers and accountants “scheming” in the late seventies was delivered to all Australians by 1985 in the form of extended taxation consequences.

Lawyers of course are a bright bunch… can’t keep a good lawyer down, they soon came up with a new whiz bang scheme…

Patent Royalties” said the industrialists lawyers, Trademarks, copyright….. that’s where the next big increased revenues will come from.


Chapter 1. Royalty Revenues

We often read the refrain, Copyright and Patents enhance innovation.

I am able to find several references that suggest that Patents, Trademarks and Copyright are a growing (11 billion in 2007) business for the legal profession.

Yet I am unable to find a single (empirical) paper from an economist that proves this popular industry theorem. (Stan – stay out of thios one – I’ll get to you eventually.)

Let us review a few industry (annecdotal) claims about Licensing Royalties, surely these will give us some insight into the real value of patents.

Patent Revenue Claims from :

Licensing Royalty Revenues Invention
royalty payment revenues earned by inventors and other intellectual property owners

Example no. 1

$5.5 trillion.  Value of U.S. intellectual property as estimated by IBM.  “Patent research and recognition is some of the driest work that goes on here. But the U.S. Patent and Technology Office is the guardian of the nation’s intellectual property, which IBM says is worth $5.5 trillion.”  (Jim Landers, “Trouble impending in patent process,” The Dallas Morning News, May 1, 2007)


Example no. 2

$500 billion.  Annual patent licensing revenues forecast for the U.S. for the year 2005.  “In 1990, it is estimated that in the United States alone $15 billion in revenue was derived from patent licensing. In 1998, that shot up 700 percent to $100 billion. It is [predicted] that by 2005, patent licensing revenues will top half a trillion dollars
annually.  Amazingly, most American businesses are ignoring an astonishing $1 trillion in intellectual property asset wealth. This is thought to represent the most fertile, yet most ignored, ground for development by corporate chief financial officers.  An increasing number of business leaders at companies such as Microsoft,
Lucent, Intel, Dell and Dow Chemical are regarding intellectual property as the new core of the modern business enterprise and a major factor in their success.” Patent licensing statistics.

Intellectual Property (IP) licensing revenues statistics. (Arlen L. Olsen, Contributor, 518-220-1850, “Patents are big
moneymaker these days for companies,” The Business Review – Albany, Friday, August 11, 2000)


Example no 3

$120 billion in royalty revenues generated annually from patent licenses. “Nationwide, an estimated $120 billion is generated each year from patent licenses, up from $15 billion in 1990. With so much at stake, patent disputes increasingly are ending up in court at the expense of the patent holders. According to a University of Texas study, nearly half of those court-examined patents are ruled invalid.” Patent licensing revenue. (Megan Barnett, “Patents pending”, U.S. News & World Report, June 10, 2002)  How do you find a manufacturer to license your product?


Example no 4

$100 billion worldwide licensing market.  “Licensing is a $100 billion retail market worldwide, with $70 billion in business in North America alone, says Murray Altchuler, executive director of the International Licensing Industry Merchandisers’ Association (LIMA).”
(Cynthia E. Griffin, “License to profit: make your play for a piece of the $100 billion licensing market,” Entrepreneur, January 1, 1997)  Find answers to your questions about the
licensing industry.


Example no 5

$1.5 billion in licensing royalties collected by IBM in 2001. “Intangible assets like patents, trademarks, copyrights, and trade secrets are a rapidly growing piece of the U.S. economy.
Since companies collect fees from those who want to use their patented products, the economic rewards from patenting are enormous. IBM, for instance, was awarded 3,411 patents and collected $1.5 billion in licensing royalties in 2001 alone.”  Top licensing revenue.  How much money does a company get from licensing its product? (Megan Barnett, “Patents pending,” U.S. News & World Report, June 10, 2002)


So IBM’s share of that 5.5 trillion dollars US patent licensing value is 1.5 billion. Hmmmm.

I attended one of those informative talks last year. You know the type, “The Future of the Net and Computers and Communications”.

It was an excellent talk/presentation given by a member of the International IBM Research team.

One item stuck with me all the way through the talk and for the last six months.

On one of the slides, we were told that in 2008 of 53.1 billion services revenue, only 1.2 billion was license fees for patent royalties. (It would appear that royalties are going down – especially as they made 1.5 Bn in 2001)

So let me rephrase that, IBM,………-

Let me use their words:

World’s largest information technology research organization
More than 3,000 scientists and engineers at 8 labs in 6 countries
IBM spent $6B on R&D in 2008
Patent leader for 16 years straight
5 Nobel Prize Laureates

focusing on:

have only managed to amass enough intellectual property to annually bill less than one sixth of their annual R&D expenditure.

Doesn’t seem like a very good business model to me.

But what do I know…..

Then again 6B R+D – 1.2B Royalty Income = 4.8B tax deduction. (The 9% differentiation in the pre-tax-post-tax distribution had to come from somewhere).

if a small Australian company tried that on with the ATO, [IRS] they would soon get audited…. quick smart. Although to qualify their claim, they do have 40,000 patents in the US alone.

ACTA is supposed to be about protecting intellectual property.

(A small analogy detour.)

However if one of the worlds largest and most profitable companies can only amass annual billings of 1.2 Billion for patent licensing, then I fear that our politicians have been considerably mislead by the industry lobbyists insisting on draconian anti-civil rights legislative changes.

Lets break it down to numbers.

The industry pundits are attempting to convince your legislators to agree to interdict your internet traffic to protect a business that makes less than 1000 movies per year. The average revenue from those thousand movies is only 26 billion dollars.

Therefore the borders of all countries will be closed to electronic devices passing through freely (without inspection) for a mere 26 billion dollars.  Or less than four percent of Australia’s GDP.

Or just over twenty times the billing of IBM patent licensing revenues.

So I guess that means that if Australia wanted to shut down all the worlds borders against the illegal trafficking in fake Merino wool products (i.e.: jumpers and suits stating on the label – made with genuine Australian merino wool – when they were not), the worlds governments would agree. Imagine being asked to produce
receipts at the border for the clothes that you are wearing and being asked to produce the receipts of your tailors purchases to prove that the wool really is from X or Y..

I don’t think the public would stand for it.

Yet we are being asked to approve a commercial organisation demanding exactly that for every piece of content being carried through customs on electronic devices.

So the reason we are throwing all logic out the window by listening to the content industries claims of “poor me, poor me” is ???

It used to be they only gave the keys of a city to visiting dignitaries when great achievements were about to be agreed on.

Our politicians are about to give the individual keys to your homes, computers, phones, mp3 players and travel luggage to a commercial mob that will no doubt get paid bonuses for every piece of equipment they confiscate.

I’ve heard of retrograde thinking but this surely qualifies any politician that agrees to such a scheme to an automatic entry in the Darwin awards.

(Back to IBM)

Now IBM is an interesting Company. They have consistently over the last Century come up with the goods to satisfy the largest corporations
and governments of their ability to deliver computing results.

They even managed to get most of us into Personal Computing.

However, they saw the writing on the wall a number of years ago and reorganised their structure to deliver services. Consulting, analysing, reporting and software development.

But we all know what I think of consulting….. that little lady at the markets making candles is adding real wealth to the economy by making her own candles.

IBM used to make things, now they just provide solutions.

IBM slashes
10,000 jobs
last year 2,000 1Q 2010 in the USA
Computerworld

How

do you

increase margin

whilst

your

revenues

are decreasing?

Reader Comments to a

WSJ Article;

75% of [IBM’s]
450K work force is outside of US.

EPS growth is a no brainer with a favorable exchange rate of the USD versus other low wage currencies

By taking jobs away from the established economies
and moving them
to the lower paid emerging economies;


So sacking 12,400 Americans and an almost equal number in Europe (over the last decade) is merely a MARGIN EXPANSION…..

We talked about IBM rebalancing jobs in the EU last month when they shut down 3000 jobs in Hungary (and laid off two of my relations). We mentioned it because the Tera Report seemed to feel that all those manufacturing IT jobs had been destroyed due to file sharing….. and sometimes – ok – most times, jobs are destroyed because shareholders expect the boards of the companies they invest in to do better this year than last year….

So are IBM picking on Europeans?

No, it was a global exit from the manufacturing business that prompted the decision. IBM are now a company that doesn’t make anything.

Guns for hire that charge fifty-three billion per annum for consulting services.

So what does the Australian Government think about that ?

In Kevin Rudd’s words …

I said when I became Leader of the Opposition, that I never want to be the Prime Minister of a country that doesn’t make anything anymore. I’m determined that there is a strong future for manufacturing in this country.”

Of course, there is a place for services. Otherwise, who would hire all the old consultants?

Intellectual property, correctly used is the wealth of the nation.

However, it is more the knowledge of how to implement that intellectual property than the claims on various patent filings.

As long as the nation is manufacturing, adding value to raw materials and is using the intellectual property to enable that transition.

IBM last year made 55 billion from services. Enabled in part by their intellectual property patents.

There fore the value of intellectual property in IBM’s case could be represented as 50 to 1. or 1/50th of the value of it’s services division.

There is a place for intellectual property, but it would seem from the successful IBM business model, it is only a very small portion of the whole story.

Unless of course intellectual property is only used to litigate.

In that case, the value of intellectual property is a myth and it should be given a lot less attention that it currently receives.

We need to build an environment where industry make things, because It is profitable to do so.

The Australian innovation patent is a good first step.

Allowing one industry to dominate our legislative and judicial systems at the cost of other industry being able to operate is tantamount to drafting a future plan for the bankruptcy of the nation.

Telstra is an excellent example of a company that was allowed to control the economy of the whole of Australia via it’s charging regimes and anti-competitive business practices.

The present Government having realised that, have elected to dismantle Telstra into small, manageable divisions that won’t be able to hold the country to ransom by billing outrageous charges that restrict the flow of commerce.

It is unfortunate that many Australians still do not view the business practices of Telstra over the last twenty years as the single biggest reason why we are so far behind the rest of the world in terms of access provisioning of broadband infrastructure.

Let’s hope that the content industry are recognised for the schoolyard bullies that they are before we inadvertently completely give away all of our civil rights.

If I were the Government, I would be mandating that there will be no more legislative protection offered until, all content is available, digitally, legally. Ubiquitously via all digital services in all countries. THEN if there is a problem that can’t be controlled by alternative commercial means – by all means let’s legislate something… but until then …  Meh!

We have discussed the many methods that content could be delivered legally via the file sharing networks.

The content industry, fractured and divided, even amongst themselves, is not all that interested. Even though their revenues from digital sales far outweigh traditional box-office numbers.

The numbers? Sure. Digital sales (where product was available digitally) equal 175 to 1 of box office sales.

Physical units? Sure. Physical sales last year equaled only 124 times box office sales (and dropping).

When they become interested, and creative about finding solutions, rather than just relying on antiquated methods (sue the bastards); that is when Governments should step in to protect their interests.

However, certainly not in any manner that is designed to export any more currency out of Australia.

In other words, there needs to be a creative parity in our content industry with money generated in Australia to be retained in Australia as much as possible.

I leave you with a children’s nursery rhyme that would appear to sumarise the above quite well..

Tinker, tailor, Soldier, sailor, Rich man, poor man, Beggar-man, thief.

The END

POSTCRIPT

Umm Koltai – I’ve been thinking…

What? It’s late – go home already….

I’ve been thinking about all those IBM patents….

The 40,000 U.S. patents which are being added to at the rate of approximately 3,000 per year…?

Yeah, them, so, anyway, I was wondering…. 1.2 billion from 40,000 patents. That doesn’t seem like very much to me …..

I wouldn’t mind it.

Well, yeah but who pays for the renewals of all those patents?

IBM, I guess….

So Koltai, who runs the patenting division?

Um a lawyer? I expect.

Yep, and do you have any idea of what it costs to register an international patent worldwide these days ?

Um between fifty thousand and about two hundred thousand dollars – depending on whether you want just five countries or the lot.

Close enough.

So how much do 40,000 patents cost to renew every year?

All countries?

Yes – all countries…

Are you sure you want to know?

Yes I’m sure….

OK, well that would be about $2,000,000,000 to $8,000,000,000 depending on whether or not you want just five countries or the lot.

Oh. But IBM only made 1.2 billion….. So you mean that patenting has no possible chance of returning anything to the inventor.

Well I guess not if you want to register it globally….

Well if the worlds largest Technology Company in the world cant do it…..  how the hell are we going too ?

OK – forget the patent – let’s just make something, anything and sell it…..

Hey – how did everyone get on before patents?

Err, um, well they just copied each other. And then what ?

Well err, they had to innovate constantly to turn out better mousetraps so the consumers would keep buying the new models…

Isn’t that what everyone already does ?

Well yes… but there’s an important middleman that would be out of a job if we went back to the old way of doing things….

Who’s that?

The lawyers.

So Koltai, are you saying that Government is now a coalition of the politicians and the lawyers ?

I guess I am saying that legal jurisprudence has taken over from the former innovation industrial age producers.

At the cost of jobs?

Yes.

References:

Edgar INTERNATIONAL BUSINESS MACHINES CORP – 8-K – 20090513 – FORM (Large file full of graphics… so no-one can cut and paste the words…..;-))

Licensing Royalty Revenues

Invention royalty payment revenues earned by inventors and other intellectual property owners

http://www.inventionstatistics.com/Licensing_Royalty_Revenues.html

The BIG Picture: Innovating to Create a Smarter Planet

Dr. Matthias Kaiserswerth – Director, IBM Research – Zurich – Speakers Notes PDF

Global IP protection online

Tuesday, 11 December 2007 19:57

http://www.smartcompany.com.au/information-technology/global-ip-protection-online.html

Welcome to IBM Employee News and Links

News and links for IBM employees, retirees, ex-employees, and persons interested in pension, retirement, off-shoring and corporate governance issues”—The news you won’t see on W3!

http://www.ibmemployee.com/

The Art of DoubleThink (1984) – is not Restricted to Fantasy SCi-FI Novels.

Hot:

Unh… but what did he mean???

Governments and lobbyists are experts at the George Orwell Doublethink game to use words to paint individuals, organisations and entire countries with psychologically designed negative meaning.

For example, on the occasion of my being banned as a Director by ASIC, Mr Vladimer Malinaric (not his real name – in Australia, ASIC investigators use fake names, so in reality, one never actually knows who his/her judge is), Delegate of the Australian Securities and Investments Commission said about me:

Doublethink TAKE 1

81. Whilst the absence of gross incompetence, lack of appreciation of commercial morality, a cynical disregard of the trading advantages of limited liability, dishonesty, lack of scruples, untrustworthiness or irresponsibility does not necessarily mean that a disqualification order should not be made, the presence orabsence of such matters is relevant to the exercise of discretion.

Isn’t that a great paragraph.

Let’s break it down slightly differently…..

He said:

Doublethink TAKE 2

Para 81.

Whilst the absence of

  • gross incompetence,
  • lack of appreciation of commercial morality,
  • a cynical disregard of the trading advantages of limited liability,
  • dishonesty,
  • lack of scruples,
  • untrustworthiness or irresponsibility

does not necessarily mean that a disqualification order should not be made,

the presence or absence of such matters is relevant to the exercise of discretion

In other words, even if the guy isn’t a crook, we have the discretion to make him one.

Unfortunately, it is my considered opinion that M. Geoffron has used the language of double speak throughout the Tera Report to present data and conclusions that are based on false premise.

For example,

BSA currently categorises all illegally downloaded software as a lost sale.

They calculate their numbers by receiving sale reports from within a country, city or region from software companies.

They then conduct phone call polls with company’s to see what software they have installed on their computers in the last 12 months, six months, three months and compare that to the sales reports. The difference represents the Piracy factor.

This is quite clearly incorrect in my opinion, for the following reasons;

1.                   Some downloads would be classified as the educational curiosity factor.

2.                   Some downloads would peer recommended meme compulsions.

3.                   Some downloads would be as a result of the lack of money and forced due to peer pressure to conform.

4.                   Some downloads would be for purely convenience reasons – (e.g.: residency in a country or region where this software/digital content is not available via legal means. (e.g.: The Beatles demonstrating a 39% higher predilection of availability on the ED2K networks (eMule/eDonkey//Kademlia) because they are not available on Amazon MP3 Digital downloads. (Koltai March 2010) .

..and as we discussed, I differentiate between start-up mode file sharing for new product releases (public relations cost) and establishment mode file sharing, which I consider (copyright theft) .

However the two are currently lumped together by everyone in one basket along with commercial scale copying operations.

My biggest concern is the lack of differentiation between commercial and Games software file sharing.

For example, in the following table representing the 20 largest Software companies in the world, 7% of total software turnover is attributable to games.

If we remove the service component of the top 20 (i.e.: those companies that make the majority of money from providing services, we lose another 35.9% of total revenues for a net Software percentage of only 57%.

Of that total, by my calculation, we are only left with 16.9% of the total revenues that could be affected by file sharing.

This is a far cry from the figures bandied about in varying file sharing reports.

Of course, in that 16.9% we have Microsoft, which according to my research, even taking into effect their regionalisation lock-in for different versions of the operating system, is undoubtedly the most copied software in the world. By my calculation, according to announcements of Windows release for mobile phones, and the number of mobile phones in the world, it would appear that Windows mobile is the most pirated/copied software in the world.

However, I digress, the following table provides a high level glimpse of some of my investigations;

Company Software Revenues (M)US$ Software revenue growth (%yoy) Total Revenues (M)US$ Software Revenue share File Sharing Likelihood (Koltai) Likely at 100% Unlikely at 100% Likely BSA at 20%
Microsoft 49,453 10% 61,900 80% Likely 49,453 9890.6
IBM 22,089 11% 103,630 21% Unlikely 22,089
Oracle 17,560 17% 22,102 79% Unlikely 17,560
HP 11,604 8% 16,111 72% Unlikely 11,604
Symantec 5,692 8% 6,152 93% Likely 5,692 1138.4
Activision Blizzard 4,622 73% 5,032 92% Likely 4,622 924.4
Lockheed Martin 4,186 6% 42,731 10% Unlikely 4,186
Electronic Arts 4,268 29% 4,268 100% Likely 4,268 853.6
CA 3,936 4% 4,305 91% Unlikely 3,936
Adobe 3,361 10% 3,544 95% Unlikely§ 3,361
EMC 3,171 3% 14,876 21% Unlikely 3,171
SunGard 2,015 17% 5,596 36% Unlikely 2,015
Cisco 1,984 14% 39,455 5% Unlikely 1,984
Autodesk 1,982 1% 2,303 86% Likely 1,982 396.4
BMC 1,585 2% 1,698 93% Unlikely 1,585
Take-Two Interactive 1,452 48% 1,452 100% Likely 1,452 290.4
NCR 1,431 6% 5,315 27% Unlikely 1,431
Intuit 1,383 -3% 2,800 49% Likely 1,383 276.6
Synopsys 1,200 11% 1,341 89% Unlikely 1,200
Citrix 1,180 11% 1,583 75% Unlikely 1,180
Totals 144,154 346,194 68852 75302 13770.4
Real 10% 4% 13770.4
Likely 48% 20% 68,852
Unlikely 52% 22% 75302

§ Adobe has been marked unlikely due to the support, utilities and proprietary server lookups that have secured this publisher from most attempts at file sharing it’s software successfully. Additionally, Adobe offer generous trial versions that can be extended.

I spoke to one of BSA’s Senior executives and aired my concerns with him.

It would appear that from our discussions, that your formula does not make allowance for digital purchases inter-region via Amazon, eBay and other Digital software distributors.

We discussed a growing tendency for consumers to disregard national borders when shopping on the internet driven by pricing alone. Example number 1. Corel Draw full version on eBay.

Both vendors offer free postage yet one (the USA offering is $96.00 cheaper).

(in our conversation you suggested that this was no longer the case.)

Example 2.

Game vendors no longer restrict themselves to sales by country region alone:

http://www.battlefieldbadcompany2.com/en-gb/buynow

I can purchase from any country with no restriction (except the cost of Freight, but vendors like this are reaping the benefits of their international open sales policies with Battlefield Bad Company number one on the Games list last month in the UK..

Rank Platform Games Hot List March 2010 Individual Format Top Ten UK Sales Market Penetration ED2K
1 360 Battlefield Bad Company 2 202,000 NEW 533
2 WII Just Dance 190,000 746,000-790,000 12
3 PS3 Final Fantasy XIII 125,000 NEW 0
4 PS3 Battlefield Bad Company 2 122,000 NEW 0
5 360 Final Fantasy XIII 110,000 NEW 8
6 PS3 God of War III 94,000 NEW 19
7 WII Wii Fit Plus 93,000 1,142,000 25
8 PS3 Heavy Rain 86,000 172,000 0
9 WII Wii Sports Resort 84,000 1,587,000 83
10 NDS Pokemon Soulsilver 79,000 NEW 175

After my discussion with the BSA senior executive, I sent him much of the above data for his consideration. He notified me a few days later that he had received my comments and would be looking into it.

I have not heard back from the gentleman in question advising me that they had altered their counting method to allow for cross border and digital software purchases.

Unfortunately last week the BSA piracy report came out and no mention was made of the possibility of errors in the finding, nor was there anty change in the way they counted their data.

For BSA each lost (bricks and mortar locally estalished software vendor) sale was still a direct result of Piracy, even thought their collection methodology was outdated by at least the age of eBay’s and Amazon’s first cross border software sale.

Patrice Geoffron based his entire loss calculations based on the provably incorrect BSA numbers. Admittedly he (M. Geoffron) discounted the one for one by 50% to be two pirated copies equaled on lost sale, however unfortunately by our calculations as evident form above that number is still about 93% too high.

Conclusion, I am concerned that when persons like Geoffron P., economist consultant to BASCAP issue reports like the Terra Report last month designed to convince politicians to vote for the Three Strikes legislation, based on incorrect assumptions and data, (based almost entirely on BSA numbers) then policy makers have no choice but to accept their findings.

Even when those findings are at least based on data that is provably 93% wrong

Reason Number 5 why Music Sales might be/are down Let’s Talk about Second hand Games.

Hot:

The other day we hinted about the importance of Computer Games to the new economy.

Patrice Geoffron in his report to BASCAP, destined for the heads of Governments throughout Europe, unfortunately omitted to include the value of the video games industry in his report, even though in the most recent IFPI report, Mr. Kennedy, the Chairman of IFPI recognised that Games had overtaken music as the number one selling media commodity.

Source 1 IFPI 2010 Digital Music Report

Today, we are not going to analyse the discretionary household expenditure portion of the 267 million or so games that have been sold (yearly/aggregated)  in the EU since 1998.

Clicking in the above will download a copy of the source excel file

Or the 60 million kilos of games missing from the PRA 36500 datasets.

At 130 grams per game, (DVD, case and booklet) we make that 461,538,461 computer games that were shipped but never manufactured.) Yeah right!

Must have been pirated games that were sold. (I’ve heard of commercial in confidence but quite frankly this is ridiculous…… I don’t see any valid reason why the numbers can’t be supplied ten years after the event…. surely the competition wouldn’t learn anything valuable ten years later……)

But let’s not discuss that yet….

Nor will we dwell on the growing sales of computer consoles designed exclusively for gaming.

Or why console sales in the UK appear to be falling in comparison to the market growth in the US. (Because of course, everyone knows, you can’t pirate a consol… it’s hardware.)

Nor will we spend any time discussing the apparent huge boost in revenues to the games industry, companies like Sony, Microsoft,
Nintendo, on the occasion of the launches of the DS, Wii, XBox360 and of course the PS-3 and how those billions of dollars curiously resemble the drop in the music numbers.

No, we’re not going to talk about all that. Everyone already knows all that, except perhaps M. Patrice Geoffron (who doesn’t believe that companies like Microsoft and Vivendi and their publishing products, should be included in his report on job loss in the EU).

Today, we will travel geographically southwards to the forgotten continent. The antipodes, or for persons not located in between the UK and the Netherlands, Australia; and backwards in the fourth dimension to 1979.

We do this to find a set of statistics that are (mainly) isolated from possible cross border purchase/sale statistical contamination principally through Australia’s distance and subsequent shipping costs.

With a population of approximately twenty-two point six million people; Australia quite often technologically benefits in it’s physical remoteness and small population base by being selected as the test bed for new technologies, (cellphones in the early eighties) and occasionally we are not (lack of micro computers in the late seventies). In fact, we were the last ones to get a Radio Shack in the 70’s.

What did happen is that when Radio shack did finally open in Oz, Dick Smith (a competitor) opened shop
simultaneously and with the ensuing competition, it appeared that everyone could afford to buy an Atari, a TRS-80, a Pet Commodore, an IBM clone or an Sinclair ZX.

Australia went computer mad. (Although with TIME magazine voting the IBM 5129 the Man of the year…, possibly it was the whole world that went comuter mad.)

“Music? Don’t bother me woman, and turn down Tina Turner. I’m writing a program to classify all your recipes.”

The eighties were amazing. We went from a nation with one computer per eleven thousand people to one computer
per ten households in less than ten years.

In 1983 at the Koltai residence, in the distant countrified remote city of Darwin (near Kakadu), we had a
Ferranti, an Olivetti, an ATT&T 3B2 a DRS300 an NEC HO2 and my favourite, the Phantom Chess Challenger (which was a chess game with XY self moving chess pieces and not technically a computer – with keyboard, but it used to beep, and it’s a game, so it’s included.)

Each computer had a variety of games installed, depending on the computers capabilities and operating system.

The NEC had an advanced Noughts and Crosses, the The 3B2 used to dial-up Minerva and we would play Zork online (at the blindingly fast speed of 150 bps…..), before Infocom released Zork for IBM at the bargain basement price of only $79.95.

As Australian households warmed to their new technical toys (that kept the kids busy for hours – unlike music
that wouldn’t keep them out of mum’s hair for more then ten seconds…..) software consumers overnight, became wannabe game programmers.

SIMTEL20, the White Sands facility that was volunteered for civil use by the US government in 1979
suddenly became a repository for thousands of Amiga, IBM and Apple users.

Each of these users purchased a modem and called their local BBS; which of course in Darwin, was “moi”. My entire
role in life in those days was to get the best software so that my users could “play”.

Definition of the best software?  Sure, anything that was public domain that was a utility or game that had source code.

The public had computers and they wanted to learn how to emulate Bill Gates; and each one purchased sound cards,
more memory, a Borland compiler or two, advanced 640×480 graphics cards, larger monitors, modems and for the kids… ahem ahem, some games.0

Exit the past, arrive back in the present, Saturday Afternoon, the 1st of May 2010.

On eBay in Australia there appears to be between fifty to sixty thousand second hand Video games available for sale on a rotating basis with each listing taking between seven and ten days to finalise. (Finalise does not necessarily mean a sale. Listings can expire with no bids thereon.) That produces a turnover of around 6295.8 games per day.

Ebay Category Games

Rank

Platform

On Offer

1

PC

12,047

2

PlayStation 2

9,120

3

PlayStation 3

7415

4

Xbox360

6,725

5

Nintendo DS

5,956

6

Wii

5,706

7

Xbox

2,423

8

PlayStation

2,351

9

PlayStation Portable

2,131

10

Nintendo 64

1,412

11

Mega Drive

1,168

12

SNES

1,149

13

Game Boy Advance

927

14

GameCube

914

15

NES

809

16

Game Boy

701

17

Master System

673

18

Atari

332

19

Game Boy Colour

297

20

Saturn

195

21

Apple

130

22

Dreamcast

120

23

Not Specified

91

24

Game Gear

88

25

Commodore

59

26

Mega CD

12

27

Intellivision

6

28

Colecovision

1



Saturday 1/May/10

62,958

To calculate the average value, we traveled to the other side of the world to a popular games pricing site, http://videogamepricecharts.com used by secondhand retailers globally as a price indicator.

(Whose principal audience according to Alexa is :Based on internet averages, videogamepricecharts.com is visited more frequently by males who are in the age range 18-24, have no children, are college educated and browse this site from school).

Game System

Total Vendors

Avge Price

Total Games

Avail Second Hand

Atari 2600

774

58.97

539

414

Atari Lynx

102

15.23

84

63

Gameboy Advance

3846

8.19

1088

1064

Gameboy Color

3192

5.44

960

941

Gamecube

2288

8.39

646

605

Mac Games

292

24.23

147

132

Neo Geo

62

190.74

55

45

NES

2863

63.70

814

802

Nintendo 64

1237

8.97

338

338

Nintendo DS

3860

14.05

1231

1205

PC Games

926

28.68

406

378

Playstation

4972

7.46

1309

1308

Playstation 2

7030

7.39

1921

1908

Playstation 3

1322

27.49

457

456

Sega Dreamcast

992

10.92

300

280

Sega Genesis

2609

8.64

713

706

Super Nintendo

2779

24.59

727

726

Wii

2440

17.73

779

770

Xbox

3564

5.37

1002

938

Xbox 360

2254

19.52

679

673

3DO

340

16.15

172

156

Atari 5200

104

21.40

85

63

Atari 7800

98

11.51

85

45

Colecovision

194

17.07

120

108

Commodore 64

352

22.09

581

274

Intellivision

221

14.61

113

111

Jaguar

87

20.95

69

50

PSP

1520

11.72

542

524

SegaGear

545

5.88

303

232

Sega CD

414

11.52

160

143

SegaSystem

391

12.87

318

180

Sega Saturn

719

16.58

260

253

TurboGrafx-16

260

27.97

118

115

Virtual Boy

40

76.45

17

16

52689

$ 24.78

17138

16022

Where we discovered that the average price for a second hand computer game from N=844,183,158 (avail second hand games times total vendors) was $24.78 (USD),

If we accept the premise that 54.8%[i] of eBay listed items conclude successfully in an average of 7 days, and; eBay in Australia has 3.2 million registered users;

then the Australian eBay market in used computer only computer games totals $ 33,493,301.51[ii] per annum or $ 10.47 per eBay user. ($1.52 per capita).

If we allow for a similar interest by non eBay users (at a rate determined to be 69% of the total Australian population with a PC at home) and we attribute the satiation of their interest via more traditional low cost reselling venues, i.e.: flea markets, garage sales, classifieds, local notice-boards, friends and pawn shops, then suddenly, we get to $ 49.65 for every household in Australia, with a computer, per annum.

If we add that to Australia’s wholesale music purchases per household…

Remember, this is for the entire household, and not per capita.[iii]

2002

2003

2004

2005 ^

2006

2007

2008

2009

Music Wholesale $ (AUD)

609,534,000

646,002,000

606,970,000

520,267,000

483,915,000

422,247,000

371,448,000

366,868,000

AU Households

7,505,674

7,645,366

7,783,687

7,920,842

8,058,248

8,186,752

8,315,589

8,444,779

Per Household

$ 81.21

$ 84.50

$ 77.98

$ 65.68

$ 60.05

$ 51.58

$ 44.67

$ 43.44

As Mr. Spock would say….                     “Fascinating”.

The argument is of course slightly flawed because we must allow for;

  • not everyone with a computer wants to buy second hand games, and;
  • most persons with a computer and inclined to play games are no doubt aware of the cost benefits of
    purchasing via eBay and would therefore lost likely do their shopping online.

However, it does make for an interesting thesis and as my regular readers know…. It’s at least as credible as the Music Industry claims that piracy has damaged their revenue model.

In closing to give you a little more thinking music…  (Leonard Cohen “Everybody knows”)

Let us return to that N number….. 844,183,158 second hand games for sale, globally.

The company states that they obtain their pricing from several sources:

The prices shown in the table above are the average price for each game over the last 90 days on eBay.com,
Amazon.com, Half.com, and JJGames.com. The prices are updated daily. The price is what an
individual would receive for buying or selling a used copy of the game.

We decided to use the same numbers as we used from eBay Australia, above.

i.e.: 54.8% of all games sell within seven days, however, we thought we would make it 30 days on a global basis, in honour of the recession.

The total? $10,130,197,896 for second hand games ONLY. No consoles, no attachments. Just pre-loved, aging
computer games.

That’s a global per capita of around $1.40.

Makes one think about those claims of computer piracy being the reason for the drop in sales numbers for the music guys…….

The new games and new software that’s been sold in the EU since 2000?

That’s a story for another day.. and what a story!


[i] Confidential Source

[ii] At USD>AU exchange rate 0.931637 · 1.07338

[iii] We consider that with the millenials tending to live at home until about age twenty-five, we should count per household.

References:

PRA 36500 Games & Toys 2007

31010DO001_200909 Australian Demographic Statistics, Sep 2009 -ABS

Resources:

Everybody Knows (Cohen, Leonard;Robinson, S)

Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knows


File Sharing Education Patrice Geoffron and the Global IQ

Hot:

This article starts out somewhat sardonically (which is appropriate as regards the charges levied against the global online community), but becomes a little more serious as it develops.

News flash……

We have discovered a major omission in the Tera Report and will attempt over the next few weeks to correct this injustice

It would appear that M. Patrice Geoffron, omitted some major sections from the Tera report thereby understating the true value of damage to the music industry by Piracy.

Specifically in his selection of Consumer Durables in NACE 1.1

To overcome this deficiency we have been scouring the NACE categories for days to identify other items that should be included in his report.

We have identified an interim list that we urgently wish to bring to the worlds attention.

Internet Piracy would also appear to have affected the following Manufacturing industry’s:

  • Sales of Gramaphone players, mechanical, self powered, wind-up, portable.
  • Sales of Gramaphone Cylinders, wax,
  • Sales of Phonograph Players, mechanical, self-powered, wind-up, (home)
  • Sales of Phonograph players, mechanical, coin operated, wind-up, non portable.
  • Sales of Phonograph players, electro-mechanical, coin operated, non-portable.
  • Sales of recorded music, 78 rpm, 12” shellac,
  • Sales of Pianolla Rolls, paper, printed, with patterns
  • Sales of Pianolla Rolls, Linen, printed
  • Sales of Pianolla players, style upright, formal
  • Sales of Pianolla players, wooden, style, Grand Salon, formal
  • Sales of Pianolla players, wooden, electro-mechanical, style bar or saloon
  • Sales of Calliopes, steam powered, horse drawn
  • Sales of Organs, church, pedal powered, bellows, wooden

We note that M. Geoffron has already included Jukeboxes, coin operated, non-portable.

And;

  • Cassette tape player Decks (home)
  • Sales of Cassette Tape Player (portable)

However, additionally we have identified….

Sales of Record Players (portable)

  • Sales of Home Stereo units (non-portable), inc. Radio, valve [non-transistorized].
  • Sales of Home stereo units, portable, transistorized, mono [AM only radio]

We have discovered that all of the above business have also been affected by advances in technology and have lost considerable sales, no doubt due to piracy….

Pardon? M. Geoffron said what?

He said that Newspapers and ? Music sales were affected by piracy on the internet.

Did he say how newspapers were affected by these horrible Somalian marauders?

Non?

Well what about the music sales then? Did he compare the sales of individual music tracks with it’s chart position and then track the weekly sales in the shops?

Non?

Pardon?

Only one person in the world has done that research?

You mean besides me……

Oh, you are talking about me.

Good, I though someone else had measured the effects of a whole country downloading the most popular songs and measured every download comparing the sales against the download progress.

We developed a whole methodology you know… we called it the P2Pscore method.

Yes, I know. You kept telling me how wonderful it was.

The Hedonic Value of P2P to our Economy.”

(Koltai June 2009 – updated Apr 2010) we said;

We will be anecdotally commencing an examination of the apparently growing causational relationship between higher education and file sharing (and no, we are not referring to the music industries suggestion that universities/colleges are a hot bed of invisible i2p file sharers).

If the content industry is to be believed, their business model has been devastated by young college students wanting to get their entertainment for free.

Therefore we can make some assumptions from this claim.

File sharing exists to rip off the Music Industry,

Ergo, the most popular files will no doubt be the Music Industries most cherished jewels. The Top 40, an artificially developed promotional aid to assist in the sales of music tracks and development of artists

Enabling some conclusions to be drawn, amongst which would appear to be the fact that:

If the most popular files on the file sharing networks are not the Jewels of the Music Industry, then they have been misrepresenting the facts and their pleas for legislative protection and judicial relief need to be ignored and current legislative enactments need to be reviewed and rescinded if appropriate; e.g.: The three Strikes/Hadopi/ACTA..

On that basis we started looking at the most likely downloaded music content, the Australian Top 50 published by ARIA.

We collected Data on a non-indexing Lugundum server for 26 weeks from February to September, 2009.

We compared the data searches to the ARIA music charts week by week, with particular care and attention to the happenings in June, (the commencement of the Australian winter) and this year, the loss of Michael Jackson, which turned the traditional charting world on it’s head.

As with any charting system, there are risers and fallers. The current Aria Top 50 Number #1 song is Boom Boom Pow by Black Eyed Peas. It would appear to be (as far as the P2P community concerned), a faller. Whereas, the week before, Knock You Down the ARIA # 49 had a P2PScore of 298,000 placing it at number 14 followed up this week moving to slot number 6 and would appear to be a riser.

ARIA Top 40 Digital

ARIA Top 50 Physical CD

The Koltai Comparative

P2P Top 10

P2P

AU IP Req

TW

LW

TW

LW

WK-1

#

P/Hr

29

16

31

HUSH HUSH; HUSH HUSH

1

390

3.406114

4

4

5

4

BREAKEVEN

2

291

2.541485

36

28

39

33

MY DELIRIUM

3

273

2.384279

3

2

4

3

JAI HO! (YOU ARE MY DESTINY)

4

256

2.235808

18

22

22

27

WHEN LOVE TAKES OVER

5

242

2.113537

38

New

37

49

KNOCK YOU DOWN

6

221

1.930131

12

10

17

10

NEW DIVIDE

7

194

1.694323

8

9

8

9

THE CLIMB

8

193

1.68559

39

26

35

26

KNOW YOUR ENEMY

9

192

1.676856

1

1

1

1

BOOM BOOM POW

10

185

1.615721

P2P interest in Boom Boom Pow when it reached the top of the Aria charts last year was flat with a slight drop (sample period 48 hours).

Whereas the eMule community in Australia valued Knock You Down at thirty chart points ahead of ARIA sales.

Our method for determining the popularity of the Australian Top 50 includes a factor based on the number of requests for a particular track by a certain artist from Australian IP numbers on the ED2K network.

We have devised a methodology for eliminating the thousands of industry generated fake and empty files from our data (inserted by the music industry to make obtaining the content harder for illegal file sharers and also a lot harder for anyone to measure the real metrics of file sharing.)

And we have some stats… according to an auto port (PC service ports) poll [see references] of 1.6 million users conducted in 2007 that demonstrated that 0.04% of the world uses emule on the eDonkey network. And the number of Emule users are estimated at between 3 (Peerates) and 27 (IPFI) million.

For conservative purposes, we prefer to use the Peerates number, 3 million.

The number of connected users per peer vary between 0 to several hundred – lets say average connected hosts per peer = a conservative 100.

Each host can effectively manage an average of about 31 file requests per hour. (This number is relevant to several factors, including the number of files a user shares on his/her hard disk, the distance between peers (number of hops) and the popularity of the individual files.)

So – number of Emule file requests (not actual downloads) to peers that have advertised the availability of a non-fake version of the file available for downloading.

Therefore, Global Emule Users times Connected Peers times Connected hours times Requests per Hour times percentage of peers within less than 4 hops distance. (Hops artificially deliberately restricted by BGP table)

GU  *  CP *DH * HR *PH = 3,000,000 * 100 *24 * 31 *78%

Total  174,096,000,000 file requests per 24 hours.

If that represents 0.04% of the worlds file sharing base (as per the 1.6 million sample taken) then we have a pretty definitive quantum.

Unfortunately very few people are examining the Hedonic value to the economy of the users downloading software programs, ebooks and entertainment.

P2P networks according to our research are downloading an awful lot of educational material right along with the entertainment portion.

For example users downloading educational material like Microsoft Office Excel – Hungry Minds – Excel Programming (2002).pdf by a factor of .4 requests per hour more than the number one listed hit song in Australia.

These numbers would suggest that P2P users are more interested in educating themselves than entertaining themselves.

If our statistical analysis continues to confirm this proof it would appear that as well as P2P killing the Porn Star, it’s users are now more interested in bettering  themselves educationally than ensuring the availability of the latest rap aural transgression assault on their eardrums.

To refresh your memories, in that article we said:

“According to Ipoque, 22% of Internet users generate 76% of all internet traffic via Bit Torrent or emule  downloading 38% movies, 25% Games 14% TV shows 9% music and only 1% porn”.

The music statistic was made up of 7.12% audio only files and 2.52% of music videos.

However the conclusion was that Pornography appeared to be gradually displaced by other areas of interest by consumers, the majority of whom appeared to satisfy their curiosity within a few months and move onto more relevant and interesting content.

The quantum of value per downloaded educational item of content is subjective to the individual.

Nevertheless, the mere fact that users are electing educational materials in higher frequency growth patterns than entertainment material (note the exponential curve), is significant and we feel it therefore relevant to conclude anecdotally that this would appear to be a trend.

We haven’t quite worked out how to determine the age of the persons requesting Autocad or Crystal Reports or the entire Hungry Mind series. However, if as I believe, the ages of the requesters of those files is getting younger, then some additional conclusions can be drawn and appropriate alterations need to be considered for the way industry and Government interacts with our younger users;

  • Reclassification of Material as Educational Promotional Give away marketing.
  • IFS via P2P appears to be filling a gap not currently provided by Universities or High Schools
  • A better educated population resulting in a higher GDP and higher lifestyle aspirations

As a 13 year old can have absolutely no use for Autocad apart from the educational value, the “loss” suffered by Software companies and as reported by IDC (summary findings here) needs to be revisited and revised downwards – however, those companies should be able to claim the downloads as a promotional cost on their taxation returns..

The Hedonic value? Considerable.  The methodology for calculating that value and adding it to the national GDP of Australia ? We’re working on it.

But some initial subject matter worthy in our opinion of further consideration and research would be:

  1. Socio-economic values including:
    1. Value to trade of international language assimilation through the distribution of popular multi-media content.
    2. Sociological value of distribution of country specific cultural content
    3. Global Trust quotient developing as a result of 1 & 2.
  2. The value to commerce of having technologically more capable employees familiar and capable of utilizing a wider range of software environments.
  3. The value to Government of having a citizenry with a higher level of education fostered by open access to information.
  4. The loss potential to nations that do not allow their younger generations to utilize all possible means to learn.
  5. The future trading loss when nations that do not restrict their Internet users, have a smarter abnd better educated population base.

Back To the Music

Let us not forget that the whole file sharing hoo haa was started by Napster and it was the music industry that decided to latch onto file sharing as the reason for its failing revenues.

We think it would be ironic if the device (The Top 40 List) that “made” the music industry successful during their build-up years was the unraveling of their aspirations a half century later. Not because there is anything wrong with the Top 40, with the exception being, the Industries Top 40 does not apparently equal the users Top 40.

This was confirmed for us recently in a comparison of number one hits versus music sales.

The music purchasers were diverting from sticking to number one purchases.

In Australia last year a local TV station aired an AC/DC special. The P2P networks responded to the call to action and search requests for AC/DC’s hit Thunderstruck outperformed the entire Australian Top 50 by a factor of 62%.

In other words, Thunderstruck was searched for almost as much as the entire collection of Aussie Top 50.

But of course, this news would delight the band, because it is a strong indication of ticket sales for their (at that time) up-coming Australian concert tour.

However, this started me thinking, what else could be more popular than the Australian Top 50?

We were surprised ….

Peer Gynt’s Prelude to Act II composed in 1875 beat out all but two of Australia’s top 50.

Now it’s a nice piece of music, but not quite as well known as Opus 46 (In the Hall of the Mountain King).

In conclusion, our finding is that the world isn’t all that interested in what the music industry are pushing and as to the accusation that file sharing is the reason for their financial losses…..

we respond briefly; bullshit! When Australians, (determined by IP numbers) choose a 233 year old piece of music over the current Top 50…. There has to be something wrong with the Top 50.

We concluded this article with a brief light-hearted look at…

An anecdotal analysis of the value of P2P to the Australian Economy

Population (AU):

22,000,000

Notes

Per Unit

% pr/yr

Number of

Total $

Infrastructure

A

98,000,000,000

0.21%

98,000,000,000

20,580,000,000

Maintenance

B

209,860,000

1

209,860,000

209,860,000

Wages/Paye

C

5,000,000,000

1

5,000,000,000

5,000,000,000

Computer

D

1,000.00

33%

11000000

3,630,000,000

Laptop

E

1,500.00

66%

4400000

4,356,000,000

Router

F

69.00

33%

3300000

75,141,000

Wifi

G

180.00

33%

3300000

196,020,000

Sat Dish

H

420.00

33%

110000

15,246,000

Modem

I

90.00

20%

11880000

213,840,000

Cellphone

J

550.00

66%

22,000,000

7,986,000,000

Retail Use Plan Home

K

39.95

100%

5,500,000

2,636,700,000

Retail Phone Data Use

L

18.00

24%

9680000

501,811,200

Wholesale Billing

M

12.00

100%

5,500,000

792,000,000

45,400,618,200

GST

(GST not calculated on “A” and “B”)

2,061,261,820

Total Value of P2P

(At 80% of Network and CPE value)

$37,969,504,016

(This table does not make allowance the surge in the acquisition of small home media centres and terabyte hard disks. )

Hard disks

Year

2004

2005

2006

2007

2008

2009

$

220

185

330

360

195

440

Size

80

160

320

500

1000

2000

$ p/GB

2.75

1.15625

1.03125

0.72

0.195

0.22

Home media centres are now under $150 each on eBay and 1 TB hard disks are similarly priced. Therefore a $300 (AUD) investment allows for the storage of approximately 1500 ninety minute movies.)

In other words, in Australia P2P is worth more than the entire combined revenue base of the member companies of the various industry bodies trying to stop P2P. (i.e.: EMI, Warner, MGM, Sony)

Now if we to multiple those figures by the population of the rest of the world and you have an industry globally that adds up to $10,355,319,277,091

That means that technology that started because of the ubiquity of content has now outstripped the value of that content, and replaced it with something far more valuable.

Basically, taxable revenue – yes I did say TAXABLE, dollars that your government obtains revenue from – unlike Movies and Music and overseas made TV shows.

Notes:

Assumptions.

  1. The cost of the telecommunications infrastructure in Australia is “A”
  2. The cost of maintaining that infrastructure is “B”
  3. That infrastructure generates “C” in wages, PAYE tax and individual taxation.
  4. To utilize that infrastructure you require termination CPE (Customer Premises Equipment).
  5. CPE includes, Telephone handsets, Modems (dial-up/ADSL), Nat routers, satellite dishes, WiFi devices. Items “F” through “I”
  6. If fifty percent of Australians have a computer – let’s call that “D”
  7. Most computers are cycled every thirty six months. Therefore Annual replacement of “D” is valued at $330.00 on the basis that the purchase price is $1000.00
  8. We assume 20% of Australians have a laptop. “E”
  9. If 100% percent of Australians have a mobile Phone – let’s call that “J”
  10. If 5.5 million homes of 7.2 million are connected to the internet, that generates a monthly subscriber value of “F” (For this exercise, we assume a monthly total of $39.95 per sub.)  “K”
  11. 44% of Mobile Phones have data plans and approximately 24% of those phones utilize their internet connection.
  12. The average mobile phone data consumption is therefore worth approx. $18.00 per month. “L”
  13. All services are billed between the wholesale carrier and the retail Service Provider. “M”

In Conclusion

If the additional value of the Hedonic benefits of P2P networking are added to the equation,

Vis:

Easy to obtain multi-media content (i.e.: Grandma can now do it)

No limits on access to Data, both Governmental and Academic

Less resources utilized on international bandwidth segments due to localized file sharing networks – thereby increasing the user experience for other non p2p file sharing users

Rapid referencing of materials not readily available elsewhere.

Then the value per person [Per Capita] in Australia on a national basis increases from $1,300 PP to an estimated $4,200 PP, man woman and child.

That now equals 10% of the GDP.

P2P appears to be providing unexpected benefits.

However I should make it clear that these numbers are based on anecdotal estimates and require additional research (but we thought we would publish anyway as these days, empirical data does not seem to be required before Governments accept the findings of paid for reports from self serving individuals.)

References:

A Measurement Study of Peer-to-Peer File Sharing Systems Stefan Saroiu, P. Krishna Gummadi, Steven D. Gribble

Dept. of Computer Science and Engineering, Univ. of Washington, Seattle, WA, 98195-2350

A Survey of Anonymous Peer-to-Peer File-Sharing

Tom Chothia and Konstantinos Chatzikokolakis

Laboratoire d’Informatique, ´Ecole Polytechnique, 91128 Palaiseau Cedex, France

{tomc,kostas}@lix.polytechnique.fr

OECD INFORMATION TECHNOLOGY OUTLOOK 2004

PEER TO PEER NETWORKS IN OECD COUNTRIES

Ethical Issues in the Music Industry

Response to Innovation and Piracy Robert F. Easley

Journal of Business Ethics (2005) 62: 163–168

Content Availability, Pollution and Poisoning in File Sharing Peer toPeer Networks

Nicolas Christin Andreas S. Weigend John Chuang

S.I.M.S., UC Berkeley

Development of peer-to-peer (P2P) internet online hybrid test system

Peng Pan1; Hiroshi Tomofuji; Tao Wang, Masayoshi Nakashima Makoto Ohsaki1; and Khalid M. Mosalam;

GEEKS BEARING GIFTS OPEN SOURCE SOFTWARE AND ITS ENEMIES

Nicholas Gruen

POLICY • Vol. 21 No. 2 • Winter 2005

Privacy & Piracy: The Paradox of Illegal File Sharing on Peer-to-Peer Networks and the Impact

of Technology on the Entertainment Industry” [2003]

Written Statement of Professor Doris Estelle Long Senate Committee on Governmental Affairs

THE BITTORRENT P2P FILE-SHARING SYSTEM: MEASUREMENTS AND ANALYSIS

J.A. Pouwelse, P. Garbacki, D.H.J. Epema, H.J. Sips

Department of Computer Science, Delft University of Technology, the Netherlands

In 2007, Paul Reskinoff, from Digital Music News in conjunction with Big Champagne, started collecting statistics about file sharing clients installed on individual computers. Over a period of a year, they extracted data from 1,661,688 Internet users – the results are amazing….

P2P Client

Sep-06

Jan-07

May-07

Sep-07

Network

Limewire

0.341

0.368

0.355

0.364

Gnutella

uTorrent

0.03

0.046

0.073

0.113

BitTorrent

BitTorrent

0.052

0.053

0.049

0.046

BitTorrent

Ares

0.035

0.038

0.043

0.046

Ares

Azureus

0.06

0.063

0.059

0.043

BitTorrent

eMule

0.038

0.038

0.043

0.04

eDonkey

BitComet

0.049

0.044

0.043

0.039

BiTorrent

BearShare

0.034

0.034

0.032

0.029

Gnutella

BitLord

0.024

0.027

0.028

0.026

BitTorrent

KaZaa

0.045

0.031

0.021

0.015

FastTrack

BitTormado

0.021

0.018

0.016

0.015

BitTorrent

Frostwire

0

0.004

0.01

0.012

Gnutella

Pando

0

0

0.008

0.009

Pando

Total %

73%

76%

78%

80%

Source: http://www.digitalmusicnews.com/report/desktopq407

Over 79% of people have some file sharing software included on their computer.

We extrapolated those figures and discovered that the world will reach P2P ubiquitous file sharing installation by the end of 2011.

The Tera Report Response 5 – 1+1=-6 or How Much can you BUY an Economist for?

Hot:

Introduction.

When I was twelve, I was a regular sporting dude. Rugby, Soccer, Track and Cricket.

My father volunteered his time to be the St Patrick Colleges Football (that’s soccer) Coach, (unfortunately). Yet he drummed into me the absolute necessity of playing the ball and never the man.

In academia, and all non-contact enterprises, a similar modus operandi exists. Everyone is a gentleman. However, when one sees the future of the world coming under the shadow umbrella of politicians that are being advised by mischievous reports that very few would understand or have the inclination to attempt to decode or replicate, then it is time to alter the rules and play the man.

With the current worldwide push to limit individual creativity through the artifact of copyright, I fear that we may be already too late and have effectively ceded our intellectual and creative futures to a handful of corporations that have only their own interests at heart, and care not one iota if an independent songwriter, singer, guitarist or drummer can make a living from their muse.

The Ball is whether file sharing damages manufacturing industries in the EU largest economies to the point that they will loose thousands of jobs.

The Man is Patrice Geoffron.

Who is Patrice Geoffron.

Professeur d’économie à l’Université de Paris-Dauphine.

A respected and leading member of that educated and elite group of people that are used to dealing with and have direct access to the heads of Governments, advising the advisors on policy changes that affect not only our current interaction with technology and the Internet but the well being and future educational prospects of our youngsters.

Therefore the responsibility on the shoulders of learned men like M. Geoffron is at a higher level than plain simple persons like moi.

After all, who am I but a plain peon, chastised and adjudged by ASIC and found wanting.

But then, I don’t advise heads of state.

The recent Hadopi vote in France and the Three Strikes legislation in the UK, have all had the benefit of Professor Geoffron’s input and advice.

For the readers that speak French, the following is worthwhile watching…. If only to ascertain the possibility of bias….

Intervention de Patrice Geoffron – Colloque 16/01/09

http://www.dailymotion.com/video/x8i0cm_intervention-de-patrice-geoffron-co_news

For those that don’t speak French, it’s basically “the Internet is full of pirates that are stealing all your content and want to read all the content on line for free……..”

So don’t bother watching the video, it’s really a waste of bandwidth.

However, as one comment in relation the video suggested:

“With Martin-Lalande to your left, and Mr. Riester, Rapporteur of Internet Piracy in the audience. Mr. Negro was where? Vivendi, SACEM, SACD from the first image, who are you kidding?”

An excellent question….. Who is he kidding?

Unfortunately, when Patrice talks, Governments, Ministers, Prime Ministers, Kings, Dictators
and Presidents listen.

Patrice Geoffron likes to play with numbers to make +12% look like minus 12%

It’s a good trick, as long as no one sees what you are doing with your other hand.

Table 15 – Recorded music, film and TV consumer/end-user
spending in UK (M€)

CONSUMER / END-USER-SPENDING

GROWTH

Creative Industries

2004

2008

2004-2008

Box office market (Patrice Geoffron)

966

1082

-12%

Actual (Koltai Calculation)

+12%

Chapter 2 / The Impact of Piracy on the Most Affected European Creative Industries – 31

For example, Patrice took a number of out of date statistics and then told his audience, that he would only use the largest
Countries because they were the bulk of the industry and if he extended the data set, the problem would just be bigger…… But let me quote him directly:

This study also differs from earlier research by using a more accurate and comprehensive definition of Europe’s creative industries, one that expands the EU definition of core creative industries and also encompasses the economic contributions of non-core creative industries.
4Building a Digital Economy : The Importance of Saving jobs in the EU’s Creative Industries / Executive Summary

Findings of the Study…In 2008 the European Union’s creative industries, based on the more accurate and comprehensive definition, contributed 6.9%, or approximately €860 billion, to total European GDP, and represented 6.5% of the total workforce, or approximately 14 million workers.

The TERA methodology…Our methodology for defining the creative industries, which draws from KEA’s study and WIPO’s definitions, yields a more accurate assessment of the  true scope of the creative industries in Europe since, for the first time, both core and non-core sectors are taken together to estimate the economic weight of the whole creative ecosystem

Executive Summary / Building a Digital Economy : The Importance of Saving Jobs in the EU’s Creative Industries 5

We have estimated the economic contributions of the creative industries at a national level for the five main European countries (the UK, France, Germany, Italy and Spain), representing threefourths of European GDP contributions. The core creative industries can be assessed with the same methodology as at the European level.

Regarding the non-core creative industries, there is a technical difficulty in determining the weight of the non-core industries on a country level because of gaps in the Eurostat data, which form the basis of the calculation. To overcome this limitation we calculated the “core/non-core” ratio observed at the European level, resulting in the non-core industries representing 54% of the value added of the core creative industries and 70% of the employment of  the core creative industries. We then applied this ratio at a national level.

Given this procedure, these results shall be considered with caution. However, our assumptions remain valid since the objective is to provide orders of magnitude of the weight of creative industries in order to portray the economic ecosystem at risk from widespread piracy.

14 The Contribution of the Creative Industries to the European Economy / Chapter 1

  1. We calculate the weight of the “non-core” industries based on Eurostat data3

3 http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

Chapter 1 / The Contribution of the Creative Industries to the European Economy 17

..and this was despite the opening statement on the European Commissions Homepage on Statistics says:

Introduction

The usage of Information and Communications Technologies (ICT) has been one of the main drivers of changes within society and businesses since more than a decade. Official statistics are vital in order to monitor these changes.

In 2005, the Commission set out a new strategic framework for the Information Society: i2010 – a European Information Society for growth and employment. It is a key element of the renewed Lisbon Strategy and offers a comprehensive strategy for the ICT and media sector.

The Eurostat information society statistics are key to monitoring its three priorities:

  • The completion of a Single European Information Space
  • Innovation and Investment in ICT research
  • achieving an Inclusive European Information Society

A respective i2010 benchmarking framework was approved by Member States and the Commission in 2006, which set out a comprehensive set of benchmarking indicators on Internet and broadband take up by citizens and businesses, and on the use of computers and online services. It provides for flexible modules on a specific issue to be defined each year.

The collection of Community statistics on the Information society is based on the framework Regulation (EC) no. 808/2004 adopted by the European Parliament and the Council. It ensures harmonised data for all EU Member States and other participating EEA countries until 2010 and contains two modules: one on enterprises and one on households & individuals. As a framework regulation it allows adjustment to newly evolving needs by users and decision makers by annual implementing measures (Commission regulations, see links in Legislation).

Now let us re-examine what Patrice Geoffron considers is the “More Accurate Core Data set.

Table 2 – Sector delineation of the “core” creative industries4

Economic
Activity

Description

NACE

Press and literature

Other publishing

DE2215

Printing and service activities related to printing

DE222

Music, Video, Software

Reproduction of recorded media

DE223

Database

Computer and related activities (software consultancy and
supply, data processing, and database activities and on-line distribution of
electronic conten)

K72

So he threw out all the selections in KEA, WIPO and ended up with DE22 (part) series and K72 series.

What does that give us? When the veil is lifted, what is Patrice Geoffron really betting his reputation on?

According to Eurostat document:Statistics in focus by Author: Pekka ALAJÄÄSKÖ 101/2008 designate4d KS-SF-08-101-EN.pdf

Business services are drivers of the EU-27 knowledge-based economy. Boosted by the European Services Directive2, they face strong outsourcing and export demand, and thrive with the new production possibilities offered by innovations in information and telecommunications technology.  The provision of Business services was the main activity of 3.2 million EU-27 enterprises in 2005, which generated turnover of EUR 1 292 billion.

There were 14.2 million persons employed in providing Business services, accounting for 11.2 % of the non-financial business economy total (NACE C to I and K) and 18.7 % of Services (NACE G, H, I and K). Business services created value added of EUR 665.8 billion, equivalent to 12.4 % of the non-financial business economy and to 22.3 % of Services. Legal, accounting and management services (NACE K74.1) was the largest subsector in Business services, making up 48 % of enterprises, 38 % of value added and 34 % of persons employed.

Okay, he appears to be on target….. (apart from leaving out Video editing, Motion picture and video activities, 3D content creation,
Motion picture and video production, Operation of arts facilities, Radio and television activities, Cinematographic animation, Games Development, special effects, Consumer durables, Information and Communication Technology (including the following NACE codes: 30, 31.3, 32, 33.2, 33.3, 51.43, 51.64, 51.65, 64.2, 72), Operational services (74.5 to 74.7, 74.82, 74.84), and a few other minor
industries worth an approximate 200,000 additional jobs, like delivery of music and VOD to mobile handsets, Telecommunications….) and the least important contribution to the publishing world….. NACE 1.1 Code O9231 – Artistic and literary creation and interpretation. (But who needs artistic interference in the publishing business…….)

We highlighted M. Geoffron’s selected countries.

Patrice generously didn’t want us to bother with the detail for the other countries; he said:

We did not attempt to estimate the economic contributions of the “partial copyright industries” to the economy of the EU member states. If we had included these contributions, the impact of the creative industries on the EU economy would have been greater than the global figures presented here, which represent, for this reason, conservative estimates.

Well, we thought we would extend the dataset to see just how big the problem, really was.

After all, if one is hired to advise heads of state, ministers of the Crown and the entire EU Government, then one shouldn’t take any shortcuts…..

So, by using (the outdated and invalid) NACE 1.1 we discovered that industry was shrinking…..


However we also learnt from Toth last week, that labour regime shopping meant that those jobs were going to neighbouring
states….. Like this.


But of course, M. Geoffron is correct, the pittance of jobs added to the EU 25 is a paltry 200,000 compared to the 1.48 million minus the 150 thousand….. Ooops. There appears to be an illegal growth of jobs.

That can’t be right….

M. Patrice Geoffron assured us that Piracy was decimating the industry…..

That jobs were being destroyed.

He didn’t say that the industry was actually GROWING……..

Here is the data with all the EU states included …..


Oh dear.

It would appear that as well being unable to add up Cinema admissions, M. Geoffron is unable to add up growth.

Because surely, the omission of the EU member states from the report was an oversight. An accident.

We thought we would compare our findings with the official Eurostat viewpoint…..

Statistics in focus Author: Aleksandra STAWIŃSKA 4/2010 KS-SF-10-004-EN.pdf

Publishing, printing and the reproduction of recorded media (NACE Rev. 1.1 Division 22) generated EUR 97 billion of value added in the EU-27 in 2006, representing 1.7 % of the nonfinancial business economy total. However, in employment terms this sector’s contribution was smaller as 219 900 enterprises employed some 1.8 million people, equal to 1.4 % of the nonfinancial business economy’s workforce.

Monsieur (Professor) Geoffron surely would not set out to use a partial data-set to convince the EU Government to vote away our rights
to unfettered and unfiltered and continuous Internet access.

Why would anyone want to do that.

No, Professor Geoffron, must have made an honest mistake.

After all, no-one with such a responsible position would lie to the Government would they?

No-one voluntarily would accept thirty pieces of silver to sell out the Internet access of the next generation of kids, would they?

We will let one of M. Geoffron’s countrymen, Serge Halimi in Le Monde Diplomatique have the last word….

Internet did not destroy journalism, he [journalism] was dying already

In 1934, the French Radical leader Edouard Daladier castigated “two hundred families” who “put the power delegates” and who “spoke on the public, because they control the press.” Three quarters of a century later, fewer than a score of dynasties have a comparable influence, but across the world. The power of these new feudal hereditary – Murdoch, Bollore, Bertelsmann, Lagardere, Slim, Bouygues, Berlusconi, Cisneros, Arnault… – often exceeds that of governments.

En 1934, le dirigeant radical français Edouard Daladier fustigeait les « deux cents familles » qui « placent au pouvoir leurs délégués » et qui « interviennent sur l’opinion publique, car elles contrôlent la presse » Trois quarts de siècle plus tard, moins d’une vingtaine de dynasties exercent une influence comparable, mais à l’échelle de la planète. Le pouvoir de ces nouvelles féodalités héréditaires — Murdoch, Bolloré, Bertelsmann, Lagardère, Slim, Bouygues, Berlusconi, Cisneros, Arnault — excède souvent celui des gouvernements.

And…. a little Graph….. which possibly someone should show Patrice.


References:

http://www.monde-diplomatique.fr/2009/10/HALIMI/18192

Eurostat:

Statistics in focus by Author: Pekka ALAJÄÄSKÖ 101/2008 designate4d KS-SF-08-101-EN.pdf

Statistics in focus Author: Aleksandra STAWIŃSKA 4/2010 KS-SF-10-004-EN.pdf

The Tera Report.

Todays article was bought to you by the number 30 and the words silver and pieces.

ACTA in Australia Not needed thank you.

Hot:

We welcome the initiative of the ACTA participants to make some of the discussions available for public scrutiny and particular the Ministers initiative in making the material publicly accessible via the Department of Foreign Affairs and Trade at  http://www.dfat.gov.au/trade/acta/index.html.

ACTA is a Trade Agreement that is ostensible deigned to protect the commercial imports and exports of countries that already have a number of trade protection barriers in place not the least of which are the GATT administered by the WTO and copyright protection administered by the WIPO.

These agreements and organisations were formed  to manage and regulate the commercial trade of goods and trademarked and copyrighted products between countries and groups of countries.

The existence of ACTA is a slap in the face for the WIPO.

We would like to respond to the Minister’s request for comments in relation to concerns that we have in relation to:

1.         the widely practiced act of file-sharing.

2.         accidental receipt of copyrighted works.

3.         possible abuse of the individual person search and seizure provisions that have not been removed from the wording.

We have proven that file sharing takes place mainly as a result of content not being available via legitimate means.

In Koltai, March 2010, we said,

It is evident from this dataset that music artists who are not represented on Amazon are 39% more likely to be listed on ED2K file sharing networks than those artists whom are available as legitimate music downloads.

Further, the recent dramatic increase in the sales of Digital products across all media disciplines, confirms the fact that the majority of persons prefer to act in a financially responsible manner that recognises copyright and that copyright creators should be re-numerated for their work.

The historical perspectives and examination of the commercial results of recent technical phenomena like:

iTunes and the iPod;

social networking,

YouTube and;

Mobile phone cameras

Have demonstrated that innovation, currency (time, not money)  and availability (access) are key factors in determining sales growth.

The amazing results of the JK Wedding dance Video on Youtube demonstrated that traditional forms of marketing and physical publishing models are essentially sunset business models in comparison to the results achievable by utilizing social networking memes.

Whilst, the content Creation Industry (CCI), advertising and traditional publishers are still struggling to fully understand the new consumerism model of “free is good”

Today’s youth have already moved onto the next meme. They appear to care less about free than NOW.

P2P file sharing is now considered passé by the greatest majority of internet users with only a few newbies and the older generation utilizing it.

The next meme is the use of private networks, sometimes encrypted, usually invitation only, the methodology of choice. Some even utilise sneaker net to effect the same result, totally unobservable by any industry watchdog.

In Australia due to download Caps,  users have taken to renting 10-20 DVD’s at a time, ripping the contents onto their home DVR/Media Centre entertainment players, (available on eBay for under $150.00)

The sales results in digital music and Video on Demand offerings since June 2003 prove that digital sales are firmly tied to catalogue releases and social networking memes than the old fashioned advertising “but this one now” campaigns of the old media campaigns.

Today’s technology generation want content NOW.

In Australia for example, the majority of digital resellers consist of non-functional web pages with a limited selection offerings.

Australians are for licensing reasons unable to access legal services such as Spotify, or purchase content from Amazon and others unless they have a US mail box set-up.

In fact although the music industry inform us that they have created all these wonderful new “legal portals” the reality is that very few are available to Australian residents.

The limitation placed on Broadband internet accounts (usage CAPs) is both the curse and the (perceived) saviour of the content industry.

The curse, because with monthly limits as low as 5 and 10 Gigabytes, total VOD consumption is limited to three to five films per month.

Therefore in Australia, because of there technological and licensing issues, Australians still download and in fact are in the top ten per capita of torrent utilisation countries in the world.

The question remains, should the Government change the laws during this technology hiatus period and if so, who will benefit?

There will very little financial benefit as the monthly download caps will still be in place. Which of course also stifle dramatically the attempt to torrent any more than ten or so movies per month.

Until the Stokes family can roll out their unwired solution across the country, I doubt there will be any forward movements in competitive content delivery to Australians.

Unfortunately reports like the Tera Report from Tera Consulting, paid for by BASCAP, clearly demonstrate that the persons issuing the reports and possibly the commissioners of those works are not above using incorrect statistics to prove the damage that file sharing has on copyrighted works.

The Ministers Department have provided a Factsheet which states:

What IS the goal of ACTA:

  • Counterfeiting and piracy continue to negatively impact States and companies. Unfortunately, today they are also increasingly affecting the everyday life of citizens. Besides the often-copied luxury goods and blockbuster movies, counterfeiters and pirates are now taking liberties with common household articles – everything from home appliances to toothpaste. From the perspective of public and consumer health and safety, the appearance of counterfeit medicines and items such as counterfeit spare parts for cars, buses, and planes poses a threat that cannot be ignored.
  • The ACTA will establish an international framework for participating governments’ efforts to more effectively combat the proliferation of counterfeiting and piracy, which undermines legitimate trade and the sustainable development of the world economy.
  • Counterfeiting and piracy are transnational activities. The growth of this illegal trade spurred the ACTA participants to agree to develop an instrument that will strengthen international cooperation in our individual and common efforts to confront this shared threat.
  • The ACTA initiative aims to define effective procedures for enforcing existing intellectual property rights.
  • The ACTA will concentrate on three areas:

a) cooperation among the ACTA parties to address the challenges of cross-border trade in counterfeit and pirated goods,

b) establishing a set of enforcement best practices that are used by authorities, and

c) a legal framework of enforcement measures.

  • The ACTA is intended to focus on commercially-oriented counterfeiting and piracy. There is evidence to suggest that organized criminal organisations are increasingly involved in the manufacture, distribution, and sale of these illegal goods.
  • Counterfeiting and piracy not only take place in the physical world, but also increasingly in the digital environment. ACTA cannot be regarded as an agreement that only focuses on the Internet. The ACTA aims to address the problem of counterfeiting and piracy as a whole, and seeks to cover each of its dimensions. Further details are provided for in the Summary of Elements Under Discussion.

What IS NOT the goal of ACTA:

  • The ACTA is not about raising substantive standards of intellectual property protection (IPR) or specifying or dictating how countries should define infringement of those rights.
  • The ACTA does not focus on private, non-commercial activities of individuals, nor will it result in the monitoring of individuals or intrude in their private sphere.
    Accordingly:

    • Civil liberties would not be curtailed by the ACTA.
    • There is no proposal to oblige ACTA Parties to require their border authorities to search travelers’ baggage for IPR infringing goods or their personal electronic devices for IPR infringing downloads.
    • There is no proposal to oblige ACTA Parties to require internet service providers (ISPs) to terminate users’ connections on the basis of accumulated allegations of online IPR infringement (the so-called “three strikes” rule).

Unfortunately, the Discussion paper is at odds with the factsheet. The Discussion paper uses the term “other competent” authorities. Yet in “CHAPTER FIVE INSTITUTIONAL ARRANGEMENTS” the discussion document skims over the most important details, which are, the who, the what, and the how, or what is referred to in Chapter five as the implementation and other administrative details.

This chapter will include all necessary provisions for the institutional set up, including questions related to the implementation of the agreement, how and when to hold meetings of the Parties, and other administrative details of the agreement.

Section 1: Civil Enforcement

Civil enforcement refers to providing courts or other competent authorities with the authority to order/take specific actions when it is established that a party has violated intellectual property laws, and the rules on when and how to use those powers. The issues under discussion in this section include:

  • scope of the section – which intellectual property rights would be covered by the provisions of this section;
  • the definition of adequate damages and the question of how to determine the amount of damages, particularly when a right holder encounters difficulties in calculating the exact amount of damage it has incurred;
  • the authority of the judicial authorities to order injunctions which require that a party desist from an infringement;
  • remedies, including the destruction of goods that have been found to be infringing an intellectual property right and under what conditions and to what extent materials and implements that have been used in the manufacture or creation should be destroyed or disposed of outside the channels of commerce;
  • provisional measures, such as the authority for judicial authorities or other competent authorities to order, in some circumstances, the seizure of goods, materials or documentary evidence without necessarily hearing both parties; and
  • the reimbursement of reasonable legal fees and costs.

Section 2: Border Measures

Border measures refer to actions that customs and other competent authorities would be authorized to take to prevent goods that infringe intellectual property rights from crossing borders. The term also describes the procedures that must accompany these actions. Elements under discussion in this section include:

  • scope of the section – which intellectual property rights will be covered, and whether border measures should only apply to importations or should equally apply to the export and the transit of goods;
  • a de minimis exception that could permit travelers to bring in goods for personal use;
  • procedures for right holders to request customs authorities to suspend the entry of goods suspected to infringe intellectual property rights at the border;
  • authority for customs to initiate such suspension ex officio (on their own initiative, without a request from the rights holder);
  • procedures for competent authorities to determine whether the suspended goods infringe intellectual property rights;
  • measures to ensure that infringing goods are not released into free circulation without the right holder’s permission, and possible exceptions;
  • the forfeiture and destruction of goods that have been determined to infringe intellectual property rights, and possible exceptions;
  • responsibility for storage and destruction fees;
  • capacity of competent authorities to require right holders to provide a reasonable security or equivalent assurance sufficient to protect the defendant and to prevent abuse, and
  • authority to disclose key information about infringing shipments to right holders.

I have in the last few years been extremely interested in Copyright and what is permitted and what is not under Australians copyright laws. There appears to be a fair bit of buck passing at all levels of the community.

The Attorney Generals office is arbitrarily the most competent authority in Australia on the topic of copyright, yet queries to the AG’s office result in :

“Therefore, before relying on the material, users should independently verify its accuracy, completeness, relevance for their purposes and that it is up-to-date.

Before any action or decision is taken on the basis of any material on this website the user should obtain appropriate independent professional advice.

Links to other websites are provided for the user’s convenience and do not constitute endorsement of material at those sites, or any associated organisation, product or service.”

Unfortunately, I have found that the quality of the advice from the legal profession is sometimes unable to be relied upon with lawyers suggesting that they are there to take instructions and not provide advice.

In an environment where the Government is unable to offer firm guidance in the execution of queries relating to Copyright matters in Australia, there is little justification for criminalising the great majority of Australian technology users or penalizing them with the implementation of ACTA.

Suspicians are aroused when documents are worded thusly:

  • a de minimis exception that could permit travelers to bring in goods for personal use;

Not utilizing the queens plain English… e.g.: The ACTA participants have agreed that the search and seizure procedures will not apply to travelers in relation to their persons or personal possessions.

The words de minimis by inference suggest that an action may be dismissed if the claim or cause is considered de minimis. Small or insignificant.

Yet the following words totally destroy the small gleam of hope….. “COULD” permit travelers.

This is definitely diametrically opposed to the intent in DFAT’s factsheets….

    • Civil liberties would not be curtailed by the ACTA.
    • There is no proposal to oblige ACTA Parties to require their border authorities to search travelers’ baggage for IPR infringing goods or their personal electronic devices for IPR infringing downloads.

Although, there doesn’t appear to be a specific instruction to do so, the concept of letting a customs official or some other “authorized person” determine whether or not they should use ACTA as a justification for search seizure, destruction and possible imprisonment is one that is rather chilling.

and

  • scope of the section – which intellectual property rights will be covered, and whether border measures should only apply to importations or should equally apply to the export and the transit of goods;

Therefore with the wording of the ACTA agreement in it’s current state I am forced to assume the worst and express a few personal concerns that the limited public release of information has done little to mollify.

Personal concern 1.

That the organizational body evolving from the ACTA discussions is still being kept secret from the public. Which is of  particular concern when one realises that this body will be given, by the ACTA signatories the right to over-ride the laws of all signatory countries in relation to:

a) Personal Property, seizure, destruction and associated costs.

b) Unilateral breach of human and civil rights

c) An unfair obligation by individuals to be required to prove at short notice their unequivocal title to copyrighted material that may or may not have come into their possession via self determinate means.

Example 1. In the case of a laptop computer containing the contents of a listserver discussion forum, e,g. rec.arts.video, there may be attached to some messages an ascii representation of a portion or all of a video that may be a technical breach of copyright. ACTA in it’s current iteration would require the customs officer or other “official” to confiscate the laptop, even if the individual was not aware that the infringing material was thereon.

Example 2.  A business traveler may have on his person an iPhone. A present form his wife. At breakfast that morning, upon telling his 10 year old daughter that he would be away on business for a week, she immediately went to her bedroom and sent him a Youtube video of Usher singing  Hey Daddy (Daddy’s Home). Being an extremely busy company CEO, he notes that the receipt of the message from his daughter and makes a mental note to view it later……

Unfortunately, the customs man at the boarding gate for flight 862 to LA, has had a bad day. His wife slammed the bathroom door and he had to cook his own breakfast; so when our CEO puts his phone down on the emigration desk to sign his departure form, the official sees a successful well dressed business man with a 32 GB iPhone, something that he can’t afford to buy on public service pay-grade 3. “He mister, no phones allowed in the”…. He sees the message from the mans daughter…..  Youtube Video…. Daddy’s Home – Usher. “Excuse me sir, your phone appears to have a copyrighted song on it. Can I see your receipt for purchase of the song please.”

The CEO responds, “It’s a message from my daughter, I doubt that it falls under the auspices of Customs to determine whether or not I have a receipt for a song that I would never purchase because it’s just not my kind of music.”

Result: confiscated Telephone and Laptop (on suspicion.) The man misses flight 862 to LA.

The business meeting in Orange county scheduled for 9:30 am the following day, never proceeds. Australia loses the contract for the development and construction of 3000 Kangaroo Hummers (worth 20 billion dollars) for the sake of song that was uploaded by the publisher prior to the record release to encourage the development of a fan meme.

The business man goes home and shouts at his daughter.

His wife files for divorce.

I know of few customs personnel that would be qualified to determine who uploaded the song and whether they werre the rights holder or not. (In fact this appears ot be a problem even inside CCI companies where the marketing department upload content and the legal department send out the takedown notices the following day. If the CCI companies cant get it right, then who would ACTA propose be the adjudicating approved authority that could make these determinations?)

Are these examples extreme? Not at all. The ACTA wording as it stands allows for both of these examples to be in our futures, soon.

The ability to use almost any digital content on the personal equipment of travelers to detain, confiscate and destroy with no recourse to normal legal due process is not something that IIII believe any Australian would approve of or vote for if asked.

The Minister may have been forward thinking and transparent in his release of the information on the DFAT pages, yet there is too much unsaid in the discussion paper and too many questionable items still up in the air.

The writer would be considerably mollified if this ”Trade Agreement” was restricted to trade quantities of Trade goods.

i.e.: Specifically excluding the transit of goods that are for personal use, (described as one of everything carried on ones person or in ones accompanied baggage) by individuals, either via pedestrian or mechanized travel via air, sea, road or rail;

This exclusion would by definition exclude postal or courier articles intended as Trade samples.

In conclusion, whilst we agree that there needs to be protection of intellectual property and a certain comfort for developers and manufacturers of new products; we question the copyright term of 50-75 years when viewed against the normal time permitted to claim depreciation on an item of capital expenditure, or R&D.

Further we question the validity of erecting barriers to e-commerce trade, communications and basic human freedoms when the single largest reason for file-sharing has been the demonstrated delay in digital content release by the content creation companies.

Further, We consider that the Government should undertake it’s own study into file sharing, whilst at the same time analyzing the expenditure of Australian households and entertainment elective choices by the Australian people.

Australia was, in 2010 according to IFPI the only country to achieve the holy grail of posting a profit in all areas of media consumption.

With the limited technology access, the limited commercial offerings available, this is a clear indication that Australia does not need, or will not benefit from the personal search and seizure portions of the ACTA model and I call on the Australian Government to vote against those elements of ACTA that do not deal with commercial quantities of Trade.

N.B. The limited technology  access of 5-10 GB per month in Internet downloads would affect movie downloads, but not music downloads.

The Tera Report and its Commissioners BASCAP

Hot:

(BASCAP Business Action to Stop Counterfeiting and Piracy)

Regular readers would realise that I have a “thing” for the Tera report.

The report claimed that;

1. Objectives of the study The production and distribution of works by creative industries, including movies, music, television programmes and software, has been recognised as having a positive effect on economic growth and the creation of jobs. Unfortunately, over the last decade digital piracy (copyright infringement of digital media) has increasingly threatened the economic performance of the industries responsible for these creative works. For this reason, stemming the rising tide of digital piracy should be at the top of the agenda of policymakers in the European Union and elsewhere. But to make well-informed decisions in this area, policymakers would benefit from understanding the extent of the economic contributions of these industries and of the losses resulting from digital piracy.

The lack of accuracy of it’s selected data sets.

The deliberate omission of growth segments of the publishing industry in Europe (e,g.: Computer Database business software but not the growing area of 3D film graphics or video games.)

The deliberate use of out of date (pre 2008) EU NACE industry codes (1.1 vs NACE V2.0)

The deliberate inclusion of only sunset industry business models (like jukeboxes and newspapers).

The deliberate use of terminology that implies that the report was more comprehensive than other similar studies and therefore conclusive, when in fact the report was not more comprehensive and even added up the data incorrectly (e.g.: showing a total minus growth in UK film admissions when in fact the numbers clearly showed a positive growth.) (The list goes on, please search for Tera Report on kovtr.com to read some of the other articles on the topic.)

One has to ask when one finds such a poorly researched and badly prepared, misleading document, who does it serve? Let’s follow the money…..

To do that we have to understand the motivation of the persons whom paid for it’s creation. i.e.: WHY does the Tera Report exist???

Last year we explained that unfortunately, the nature of today’s company directors, CEO’s and shareholders was to expect and demand a return on investment today and not tomorrow. Shareholders would only reward directors for results NOW, not in five years time. As many directorships are of a limited tenure nature, 3 years as opposed to five, ten or more, it is understandable that the short term view is given a higher preference than the long term view.

“How can I make sure I get my Christmas bonus this year?”

BASCAP, is an organistion of (CEO’s) people, composed of persons, who’s principle concern is the welfare of their families;  “How can I get the most out of my tenure in this job? I may not be here next year or the year after that.” The members of BASCAP have a short term need. The organisation itself, has a longer term need. It, [BASCAP] the organisation needs to continue to source funding from it’s membership to survive. If there is no reason for it to have a membership, then it would no longer survive. Therefore BASCAP, like any consultant, or organisation, requires to continually reinvent itself and align itself with popular issues that are emotionally powerfully enough to elicit donations, subscriptions, sponsorships or commissions from it’s rank and file membership.

The Carrot and the Donkey.

For manufacturing companies, the nineties was a time of opportunity, of providing delegates to Asian countries on Trade missions and small commercial successes. Many western companies starting out on Department of Trade initiated marketing exhibitions, that eventuated initially with healthy consultancies and an opportunity to save costs and earn increased margins by extending their manufacturing to these Asian countries due to lower labour rates and longer working hours. The Asian centred Western Companies did well and the economy in the late nineties boomed. Unfortunately the carrot and Donkey approach only works when the Donkey can’t espy the carrot field next to the road on which it is traveling. Today, those same Asian companies are now creating knock-off clones of virtually everything. BASCAP was formed in an attempt to shut-down these manufacturing pirates. ACTA, is an extension of BASCAP’s efforts internationally to attempt to right a wrong that occurred because Directors of Yesteryear were only interested in the profits that they could extract at that time, with little thought of the long term consequences.

From Bascaps about page….. What is BASCAP? (Please note the caption under the photo)

Counterfeiting and piracy impact virtually every product category. The days when only luxury goods were counterfeited, or when unauthorized music CDs and movies DVDs were sold only on street corners are long past. Today, counterfeiters are producing fake foods and beverages, pharmaceuticals, electronics and electrical supplies, auto parts and everyday household products. And, copyright pirates have created multi-million networks to produce, transport and sell their unauthorized copies of music, video and software.

That seems like an eminently worthwhile aim. Surely however, BASCAP is referring to only commercial Piracy operations and not home consumers. Because if they are referring to home consumers, then unfortunately, as persons who read our article yesterday about Vivendi would realise, the multi-million dollar networks constructed for consumer file sharing of online content actually in some cases belong to the companies that own the content being shared by the consumers. In which case, as we said last year, it’s no longer piracy, merely a new content delivery methodology. And the physical goods piracy? Let’s stop all these horrible counterfeiters from stealing our business. We have to put those people in their place. It was OK when we paid them a pittance to create our products for us so that we could resell them at extremely high margins, but now that they have learnt how to manufacture the stuff, they find that they can make more money by doing it themselves and selling the output directly. Unfortunately, the Asian countries did far too well at creating cheap products. Consumers all over the world now expect their LCD screens to cost $500.00 and not $10,000. Consumers are not unfortunately economists. They fail to connect the impact of low priced

(Note the phone on right is spelt iphQne)

consumer articles available in the discount stores with the fact that their next door neighbour who used to work at the Sydney [quality brand] LCD assembly plant at Silverwater was laid of last week.

The problem unfortunately is not even that simple, which of course if it were,  could be fixed by trade restrictions on certain products to save the local employment economy. Tariffs are normally an anathema to any economist, yet, when I consider the alternative to be a global corporation dictating terms to our customs agents, our judges, courts and civil servants,  (ACTA) then possibly the tariff protection method is far preferable.

I think it appropriate to quote Bill Gates on the subject of protectionism vs innovation: “If people had understood how patents would be granted when most of today’s ideas were invented, and had taken out patents, the industry would be at a complete standstill today.” —Bill Gates In a memo to his senior executives (1991) referring to software patents.

The Tera report was commissioned to influence Governments to pass restrictions on the exchange of information between academics, commercial entities and the worlds consumers. The result of such legislation may have some short term benefits to  legacy companies that are no longer the centres of new innovations, however in the longer term (3-5 years) I predict that such restrictive legislation will slow down the development of new products and cause the economy to be severely and mortally wounded. Although, this is not the first instance of corporations convincing Governments to protect their industry.

Here is a portion of an article that I published last October, which gives an interesting insight into how forward thinking men (ok, one man, Frédéric Bastiat) thought of the protectionism sought by the dying tallow industry in the occasion of the introduction of kerosene/gas lighting.

To Protect OR to Innovate – That is the Question.

by Tom Koltai at 03:07PM (EST) on October 31, 2009 Isn’t interesting that industries that use outdated business models tend to die. In the 1800’s Candle and Tallow makers were fearful of their futures and even in two hundred years ago, there were people that paid out on the protectionist industry. The following is copied in toto from http://www.panarchy.org/bastiat/petition.eng.1845.html

Frédéric Bastiat

A Petition

(1845)


Note This is the famous text through which Bastiat, with a ferocious sarcasm, exposes to ridicule the protectionist State and all those who are in favour of protectionism. In times of anti-globalization, a text to be read and re-read paying to it full attention.

Petition

presented by the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.

To the Honourable Members of the Chamber of Deputies

Gentlemen: You are on the right track. You reject abstract theories and little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.

We come to offer you a wonderful opportunity for your — what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice — your practice without theory and without principle. We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a consideration that he does not show for us. [A reference to Britain’s reputation as a foggy island]. We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat. Be good enough, honourable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support. First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged? If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth. If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land. Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion. The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc. But what shall we say of Paris itself? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls. There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity. It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition. We anticipate your objections, gentlemen; but there is not a single one of them that you have not picked up from the musty old books of the advocates of free trade. We defy you to utter a word against us that will not instantly rebound against yourselves and the principle that guides all of your policy. Will you tell us that, though we may gain by this protection, France will not gain at all, because the consumer will bear the expense? We have our answer ready: You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too. Indeed, you yourselves have anticipated this objection. When told that the consumer has a stake in the free entry of iron, coal, sesame, wheat, and textiles. – Yes, you reply, but the producer has a stake in their exclusion.- Very well, surely if consumers have a stake in the admission of natural light, producers have a stake in its interdiction. – But, you may still say, the producer and the consumer are one and the same person. If the manufacturer profits by protection, he will make the farmer prosperous. Contrariwise, if agriculture is prosperous, it will open markets for manufactured goods. – Very well, If you grant us a monopoly over the production of lighting during the day, first of all we shall buy large amounts of tallow, charcoal, oil, resin, wax, alcohol, silver, iron, bronze, and crystal, to supply our industry; and, moreover, we and our numerous suppliers, having become rich, will consume a great deal and spread prosperity into all areas of domestic industry. Will you say that the light of the sun is a gratuitous gift of Nature, and that to reject such gifts would be to reject wealth itself under the pretext of encouraging the means of acquiring it? But if you take this position, you strike a mortal blow at your own policy; remember that up to now you have always excluded foreign goods because and in proportion as they approximate gratuitous gifts. You have only half as good a reason for complying with the demands of other monopolists as you have for granting our petition, which is in complete accord with your established policy; and to reject our demands precisely because they are better founded than anyone else’s would be tantamount to accepting the equation: + x + =  – ; in other words, it would be to heap absurdity upon absurdity. Labour and Nature collaborate in varying proportions, depending upon the country and the climate, in the production of a commodity. The part that Nature contributes is always free of charge; it is the part contributed by human labour that constitutes value and is paid for. If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market. Thus, when an orange reaches us from Portugal, one can say that it is given to us half free of charge, or, in other words, at half price as compared with those from Paris. Now, it is precisely on the basis of its being semigratuitous (pardon the word) that you advocate it should be barred. – You ask: How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest? – But if the fact that a product is half free of charge leads you to exclude it from competition, how can its being totally free of charge induce you to admit it into competition? Either you are not consistent, or you should, after excluding what is half free of charge as harmful to our domestic industry, exclude what is totally gratuitous with all the more reason and with twice the zeal. To take another example: When a product — coal, iron, wheat, or textiles — comes to us from abroad, and when we can acquire it for less labour than if we produced it ourselves, the difference is a gratuitous gift that is conferred up on us. The size of this gift is proportionate to the extent of this difference. It is a quarter, a half, or three-quarters of the value of the product if the foreigner asks of us only three-quarters, one-half, or one-quarter as high a price. It is as complete as it can be when the donor, like the sun in providing us with light, asks nothing from us. The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!


It would appear that little changes in 200 years. Free versus protectionism.

The question people should be asking themselves is WHY?

Why do we need to legislate against something that has been this way for 26,000 years of human evolution.

Monkey see, monkey do. Clever monkey. So why do we need to either put the monkey in jail or bankrupt him when it is obvious that the large CCI industries are not losing any money at all from file sharing.

References:

Lee T. (June 9, 2007)  A Patent Lie – NY Times http://www.nytimes.com/2007/06/09/opinion/09lee.html?_r=3&oref=slogin

The Tera Report Response 7 Vivendi as a Case Study of Music Piracy

Hot:

(Note for persons awaiting the NACE 1.1-2.0 article. I regret I am awaiting a Eurostat clarification.)

The Tera report omitted reporting on the largest and fastest growing segments of the EU publishing industry.

In response to that oversight we have decided to present the case of Vivendi. The largest Music Publisher in the world with it’s headquarters in Paris France at 42, avenue de Friedland a mere three kilometers from the offices of Tera Consultants, the authors of the Tera Report at 32 Rue des Jeûneurs.

For the reasons stated, we feel that Vivendi is the perfect response to Professor Patrice Geoffron’s claims about the doom and gloom about to befall European publishing companies unless all the Government’s immediately legislate in favour of three strikes legislation and ACTA.

Regular readers of this blog will remember the graph I presented last week being the convergence of Games, Video, Music and Telecommunications which we estimate occurred in between June and August, 2002.

Here is the graph again with SMS, Mobile Phone Subscriptions and SMS messages also included.

In other words our theory is that the line between devices started to blur when DVD content, Games, Video on Demand, Music, messaging, were all available on phones as a result of external storage cards (usb, SD), cameras and internet capability (WAP).

Which is why we chose Vivendi; their divergent profit centers fit the convergence model extremely well and allow us to see from a commercial point of view, what is really happening to media.

Read on, you are about to be surprised.

Vivendi is a company that after it’s problems in 2003, obviously found the management it needed to fix the problems, (with one teeny tiny weeny exception, …..
which I will come back to in a later article, sorry it’s a long story…….)

Operating Segments

Cash Generating Units (CGU)

CGU or groups of CGU

Universal Music Group

Recorded music

Universal Music Group

Artist services and merchandising

Music publishing

Canal+ Group

French Pay-TV

Canal+ France

Canal Overseas

StudioCanal

StudioCanal

Other entities

na*

SFR

Mobile

Mobile

Broadband Internet and fixed

Broadband Internet and fixed

Maroc Telecom Group

Mobile Fixed and Internet

Maroc Telecom

Other entities

Other entities

Activision Blizzard

Activision

Activision

Blizzard

Blizzard

Distribution

Distribution

Non-core exit operations

na*

At first glance, it would indeed appear that music sales have dropped dramatically with Vivendi’s Universal Music division.

About which they said in their 2003 Form 20F (NYSE Annual Report Format)

The recorded music market has been declining and may continue to decline.

Economic recession, CD-R piracy and illegal downloading of music
from the Internet and growing

competition for consumer discretionary spending and shelf space
have all contributed to a declining recorded music market. Additionally, the
period of growth in recorded music sales driven by the introduction and
penetration of the CD format has ended and no profitable new format has emerged
to take its place.

Worldwide sales in the recorded music market have declined since
1999, with no assurances against continued decline. A declining recorded music
market is likely to lead to the loss of revenue and operating income at UMG.

So, according to the worlds largest music publisher, the reasons for the decline are:

  1. Economic Recession.
  2. CD-R Piracy
  3. Illegal Downloading of music
  4. Competition for Consumer discretionary spending.
  5. Shelf Space (display at retail and stock levels)
  6. The CD is on the way out (digital not yet deemed profitable).

Moving along….

No real surprises with the Cable company. Reasonable growth now flattening with mobilization of viewing platform. (Phones) and wide availability of second hand DVD’s, cheaper home Digital Video Recorders (DVR’s) and competing Video on Demand offerings from competitors via the Internet.

I’ve bundled the Telecommunications elements together. They are all in growth mode.

I’m sure the following will come as no surprise to the gaming fraternity…

Which seem to match the drop in music, dollar for dollar.

Here are music and games together.

If we add phones, Internet, games and music together we get….

And all of this requires employees. Lots of them.

In several countries around the world.

With a little of what we term “regime shopping” obvious between France and Africa.

With political regime balancing in the USA and Europe.

N.B. zero change in Asiapac, although sales rise.

For those that doubt regime shopping, please note the following graph; costs per employee are falling, even as employee numbers are rising; in a tightly controlled labour regime, the fixed start-up employee capitalization costs would prevent this from being able to occur.

Note B Wages and expenses

All inclusive Social security and other employment charges & Capitalized personnel costs & Share-based compensation & Employee benefit plans

Global Revenues

2004

2005

2006

2007

2008

2009

France

10,835

12,216

12372

13,403

15,967

16,898

Rest of Europe

2,176

1,933

2081

2,352

2,766

3,046

United States

2,260

2,414

2448

2,319

2,889

3,153

Morocco

1,516

1,773

1960

2,139

2,221

2,248

Rest of the World

1,096

1,148

1183

1,444

1,549

1,787

Totals

17,883

19,484

20044

21,657

25,392

27,132

Now we come to their overall revenue chart which of course looks like this.

So even as Vivendi’s earnings are rising, their preference is for offshore (outside the EU) employees that have lower capitalization and benefits costs.

Although a disproportionate percentage of their employees are based in France, this is to be expected when France is the home of the company and the location of the majority of it’s shareholders.

We think that Professor Geoffron, (of Tera Consultants) should have been aware of these facts.

But in case he wasn’t, please send a link to this article to every EU politician you have an email address for.

And once more, just because I like this “Games versus Music” result :lol:. This time with the values included….

Your mission, should you not believe me, is to add the games numbers to the Music numbers – Let me know if you come up with any minus numbers that could be attributed to file sharing.

I close with some words from Vivendi’s 2004 Annual Report.

2004 Annual Report. Page 7

We expect our businesses to capitalize on the anticipated growth opportunities in the media andtelecommunications sectors:

Platforms: We have already implemented or have begun to develop the platforms on which weexpect media content will be distributed in the future. The Canal° Group currently broadcasts content across terrestrial, cable, satellite, ADSL, Digital Terrestrial Television (DTT) and UMTS (3G) platforms. UMG distributes content on CDs, DVDs, portable digital music players, other digital platforms and mobile telephony. Vivendi Universal Games (VU Games) develops products for various formats: CD-ROM, Internet, consoles and handheld devices.

Networks: We believe that quality content will drive the future success of telecommunications networks. We expect that growth of UMTS mobile telephony will rely on the availability of games,music, Internet, television and movie content. Similarly, we expect growth in fixed telephony (well they couldnt be right about everything….) and ADSL to be driven by the availability of music, television and video on demand.

Our ability to grow our principal businesses will be further strengthened by the substantial completion of our reorganization in 2004. Our reorganization effort resulted in the divestiture of a total of 424.6 billion worth of assets, and new investments totaling 424.1 billion to increase our stake in SFR Cegetel Group and Maroc Telecom and acquire a 20% interest in NBC, to create NBC Universal (NBCU).

Conclusions:

Tera Consultants possibly could have done a little bit better on their research and;
Vivendi is one hell of a well run company. Please remember, in 2003, they were against the wall facing bankruptcy. My hat off to a well executed gamesave.
(Pun intended.)

Stock-tip,
Vivendi, long. When they finally get their whole catalogue digital; stop doing that silly DRM stuff, the returns from the previously unavailable deep catalogue items will push their sales through the roof.

We end with a Koltaism……

I believe that Adam Smith was right when he said that 85% of humanity is basically honest.

The other fifteen percent? Well, let’s just say that most people are used to a 15% bad debt provision on their annual accounts.

Fifteen percent of eggs being bad is no reason to shoot all the chickens.

The Last word….

I wrote an article last year that suggested that if Media Creation Companies were also owners of Telecommunications companies (ISP’s and mobile phone companies) then the illegitimate file-sharing argument would no longer be valid unless they could demonstrate that it didn’t occur on their networks. Before someone pipes up and says it doesn’t. I assure you that it does.

References:

History of Vivendi

http://en.wikipedia.org/wiki/Vivendi

Vivendi Annual Reports:

20100409_annual_report_2009.pdf
20090408_annual_report_en_080409.pdf
20070412_annual_report_2006-4.pdf
20070412_Statutory_financial_statements_2006-3.pdf
20060630_Annual_Report_on_Form_20-F_-3_2005.pdf
20060407_annual_report_-_2005-3.pdf
20050414_supplemental_disclosure_IFRS_2004-2.pdf
2004AnnualReport-2.pdf
Form20F2003.pdf
vivendi_20final02.pdf
2001annualreport.pdf
1999annualreport.pdf

http://www.vivendi.com/vivendi/-All-the-publications-?debut_liste=0&lb=&publication=275#

PRA36500

BBS Blair Years Stats

Tomi Ahonen Phone Almanac

Perhaps the Publishing Business should pay the environmental clean-up bill.

Hot:

Yesterday we explored one of the publishers [Cinram] that are apparently (according to the Tera Report) losing jobs due to consumer file sharing which Patrice Geoffron of Tera Consultants has determined should be classified as the principal cause of damage to the future of media publishing companies in the EU.

In the report he claimed;

The study focuses primarily on the effects of digital piracy, which refers to various forms of online piracy, including file-sharing via peer-to-peer (P2P) networks. Digital piracy is growing rapidly and accounts for the majority of economic losses to the creative industries.

From 2008 to 2015, file-sharing traffic in Europe is expected to grow at an annual rate in excess of 18%. If the losses from digital piracy were to grow at this rate, the result would be revenue losses in recorded music, film, TV series and software of approximately €32 billion in 2015

I think by now, most of the world realises that file sharing is a result of the digital content not being made available by the Content Creation Industry [in fact we proved that file sharing is 39% more likely to occur when digital content alternatives were not legally available, here… Tera Rebuttal Response 1 – File Sharing – Convenience, Availability.]

Today, we will briefly study the cost to the environment and humanity of the continuation by industry in resisting the digital landslide and continuing to output their content on materials whose manufacture, distribution, utilisation (handling) and disposal by mankind is both an environmental and serious health concern.

We all know that traditional methods of publishing on paper, CD’s and DVD’s pollute our atmosphere and landfills.

But do we know how much pollution is generated by these outmoded forms of information distribution mediums?

Last year (May 12th) I published a brief article about how many Newspapers it took to build up the carbon emissions necessary to build an Ayers Rock.

The combined total of the different divisions of News Limited in 2007 output a total of 47,742 tons of CO2 per annum which is enough to build 2.83 Ayers Rocks.

For overseas people, Ayers Rock is the big thing in the middle of Australia that Martians can see without a Telescope. [Yeah? Well how do you know there aren’t any Martians? Oh, the Mars Rover…. Well maybe Martians are clever and walk around behind the Rover so it cant see them……)

In the heart of the Australian Outback, a massive block of red sandstone rises up out of the near-perfect flatness of the eroded landscape. Called Uluru, or Ayer’s Rock, this giant is a monolith 348 meters (1,142 feet) high, 3.6 kilometers (2.2 miles) long, and 9.4 kilometers (5.8 miles) around. It is the largest single rock known in the world.

Larger Version…. http://earthobservatory.nasa.gov/images/imagerecords/5000/5304/uluru_iko_2004017_lrg.jpg

OK, back to News Limited.

Their electronic Division only output 498 tons of CO2 for the same period.

Therefore if we can assume that the digital audience is as large as the traditional paper audience, (and Rupert Murdoch’s recent revelations would suggest that it is larger); we can safely deduce that digital delivery is 95.86% less harmful to the environment.

It would seem to me that irrespective of the Tera Reports apparent desire (by basing the majority of it’s study on paper production), to see newspapers continue to be printed, our environment can’t actually afford the publishing business to continuing destroying our forests, landfills and peoples health.

[BTW, the Tera Report blamed the loss of jobs in the News paper publishing business to be due to piracy……. Yuk yuk yuk. Which reminds me of the Fallon joke from last year….. I guess the Somalians board the Newspaper delivery trucks and say “Give us your newspapers or we’ll run you through…”

Rupert is an Aussie. (Yes, we invented him here….) So that when Rupert says (as he will in the next couple of years) shut down the presses, he isn’t laying off workers – he’s saving the Koalas, Platypi, Kangaroos and you and I.

Now if the Government could just get its head around  the fact that Digital is good,  Paper and plastic is bad – well we could start saving the economy.

Save the planet – download a file….. and don’t dispose of that old scratched CD in a landfill.

Just one question – if no-one buys newspapers and magazines any more, what will we do with all the extra trees?

Gee, maybe we could actually breathe better.

On the 12th of May, I covered the topic from a slightly different viewpoint.

In other words, what was the damage to the environment of using CD’s or DVD’s?

I said….

We’re on the verge of an infrastructural shift as profound as any in human history, on the scale of the Industrial Revolution.

You might say we’re going to be seeing the other side of that revolution, and it will change our political system, our ideologies, and our beliefs.

Richard Heinberg. July 2006 (On the topic of Peak Oil and the ultimate breakdown of civilization due to a lack of oil to manufacture products like CD’s and DVD’s.)

We’ve blogged about carbon emission reductions through utilization of P2P technologies to lower man’s footprint on mother earth. [i.e.: Social networking replacing group gatherings, to an extent, digital file transfers and consumers blogging to each other].

But we haven’t really given a lot of detail. This week I came across Basecamp Earth, Ecological Footprints and a couple of the comments reminded me that I needed to revisit this theme.

Nobody did – but we found out…

Diagram of CD layers.
A. A polycarbonate disc layer has the data encoded by using bumps.
B. A shiny layer reflects the laser.
C. A layer of lacquer helps keep the shiny layer shiny.
D. Artwork is screen printed on the top of the disc.
E. A laser beam reads the CD and is reflected back to a sensor, which converts it into electronic data

Constituency can be laser coated, polymer dye impregnated polycarbonate containing; aluminium, Bisphenol A, heavy metals, silver halide, gold, nickel sulfamate, sodium hydroxide, acetone, argon, laquer, zinc chloride.

As well as the cost to the environment of the CDs, DVD,s and the packaging; there is the cost of production.

News Corporation have given us an insight into the environmental cost of content creation with their carbon abatement accounting for the movie Futurama Movie on DVD.

They are the first large publisher that has acknowledged that the output product of media companies is damaging to the environment. Their Supply Chain breakdown of carbon emissions acknowledged that fact and they then purchased carbon offsets (400 million dollars plus)  to make the DVD, carbon neutral.

Source: http://www.newscorp.com/energy/iwgy.html

Thank-you Rupert Murdoch. The world owes you one…….

The actual DVD manufacturing was outsourced to Cinram. What we did learn that out of a total of 368 tons of CO2 generated, the largest component was in the manufacture and supply of the DVD’s that went on sale.

In fact 70.7% of the total carbon emissions was due the medium that the content was delivered to the public on.

It could be argued therefore, successfully, that every illegally downloaded copy of the movie was offsetting additional damage to our environment.

How much damage?

That depends on the number of DVD’s actually produced. If was say it was one million units produced, (based on the following snippit from the-numbers.com)

DVD Sales Performance Released on DVD:November 27, 2007 DVD Units Sold: 808,771 Consumer Spending:$14,688,651 See full information for Futurama – Bender’s Big Score

Which translated into carbon emission terms equals approximately three kilometers of driving in your car for each and every CD/DVD produced.

News Corporation realise that this is a problem because they then did a spiel on how Cinram were improving their efficiencies……

(At least those divisions that haven’t been moved to China to hide the real ecological damage.)

Reducing our energy use, switching to renewables, encouraging suppliers:

Several energy efficiency initiatives are underway at Futurama, TCFTV and TCFHE offices. These initiatives include lighting upgrades, maximization of chiller units, IT energy reductions, and other office equipment efficiencies.

The manufacturing facility for TCFHE DVDs is owned and operated by Cinram in Huntsville, AL. In recent years, Cinram has completed significant energy efficiency and waste reduction projects. Energy efficiencies include the installation of highly efficient electric injection molding technology and a highly efficient boiler, resulting in substantial electricity and natural gas savings.

With regards to waste reduction, Cinram has taken on recycling and reuse programs in its markets. All “waste” products are sorted at the Cinram facility in order to separate potential valuable elements for use by other industries and businesses within the community. As a result, Cinram has created partnerships with other companies in the area to take the “waste” for reuse in other products, resulting in the great majority (at least 98 percent) of the facility’s waste being reused rather than disposed of in landfills.

One of TCFHE’s printing suppliers completed significant energy efficiency upgrades over the past two years, resulting in reduced energy consumption by 750,000 kWh and more than 80,000 ccf of natural gas.

Future initiatives include energy audits at supplier facilities, including Cinram, printers, case manufacturers, and raw material providers.

Additionally, Futurama, TCFTV and TCFHE are seeking out new opportunities future carbon reductions and working with their partners to do the same
.

Therefore we now know, that over 70% of the environmental cost of the entertainment was the manufacture and distribution of the physical medium.

i.e.: The OLD method of delivering content, a la the study by Tera Consultants who believe that lobbying Government to change legislation in a manner to to keep the old publishing ways is the best alternative for keeping jobs in the EU……

So we put it to the Industry – if the industry (with the exception of News Limited)  has a problem with carbon neutralization of the carbon created during the manufacture of plastic, CD’s and DVD’s – then we don’t really want any part of that problem either.

Either CD’s and DVD’s should be banned immediately or, the industry should have to pay carbon offsets on every CD and DVD manufactured, retrospectively to 1998.

How can the content industry expect mankind to pay for it’s folly. Because that is what the current legislative moves [ and the Tera Report….] are all about. Buy – Buy – Buy…… like there’s no tomorrow because WE (the glitterati the elite, the Music business deem it so…….)

We want our payoffs now – WE’RE too old to care about tomorrow’s environment – are you?

Don’t buy a CD or DVD today and save at least 2 bandicoots, an owl, a platypus, two possums and a koala from being poisoned tomorrow.

Glossary:

P2P Communications between two or more citizens of the world not requiring a central point of contact or internet routing. The Term is sometimes mistakenly used as a catchall for the practice of file sharing.

The term originated in ancient Mesopotamia around 4,000 BC when it was the recognised method of financing a farmers future crops , via their neighbours – pre the banking the age.

References:

Basecamp Earth, Ecological Footprints.

http://basecampearth.org/exp2/calcost2.htm

CD’s

http://en.wikipedia.org/wiki/CD_manufacturing

Physics of AV items and RFID – security aspects of RFID tags do not work with AV items – possibly due to the metals in CDs

http://surferblue.wordpress.com/2008/06/28/rfid-in-libraries/

When the oil runs out: Take a second look at biodegradable cellulose packaging films

http://www.packworld.com/whitepaper-22652

Tera Rebuttal 4 – The Search for the missing Jobs.

Hot:

 

The Tera Report published on the 15th of March 2010, ostensibly is aimed at informing the reader of;  Building a Digital Economy : The Importance of Saving Jobs in the EU’s Creative Industries.

The Tera Report insists that job losses in the limited selection data-set (France, Germany, Italy, Spain and the UK) are from file sharing.

Unfortunately the Tera report failed to analyse the fluctuating economic market conditions that have existed in Europe since the 2001 general downturn in the economy.

The report fails to include or analyse other publications on job losses in the EU.

Figure 1 – GDP & Employment – EU, 2007-2009 (based on Hurley J, 2009)

Subset of Hurley J’s dataset, limited to the Tera report “selected basket of countries”

According to Hurley J (2009) The global downturn has profoundly changed the face of the labour market in Europe: by July 2009, 22 million men and women were unemployed throughout Europe, five million more than a year previously. (Not one of whom claimed that their job was lost through file sharing.)

Additional corroboration of Hurley J’s data was found in;

Eurofound Press release, 30 April 2009

Job losses outnumber job creations by almost three to one

Eurofound Press release, 1 February 2010

Levels of restructuring job loss continue to decline but so does job creation across Europe.

According to Tóth A, (2005) the majority of job losses stem from corporate relocations to countries offering cheaper labour regimes.

Toth states that the transfer of jobs from the west to the east has been an ongoing concern in Europe since the late nineties.

He cites the case of the IBM hard disk manufacturing plant in Székesfehérvár, in Hungary, where 3,700 jobs were lost when IBM sold their disk business to Hitachi whom elected to move operations to Asia citing depressed economic conditions in the sales of Personal Computers and peripherals in 2003.

“actual or even threatened relocations could trigger forms of concession bargaining and may lead to so-called regime shopping, whereby firms search for the locations which they believe can guarantee the most convenient regulatory regime (supposedly with a low level of labour protection) and governments and unions find increasingly hard to resist the demands for de-regulation of labour markets and reduced labour protections, since they try to preserve existing economic activities and employment (or to attract new activities and increase employment). In this perspective, a possible outcome of such pressures on regulatory frameworks may be a race to the bottom in terms of labour standards.”

This “race to the bottom” severely impacts mainly those countries with the strongest employment protection standards
[unions]. Like
Germany, the UK, France, Italy and curiously Spain.

And further we interrogated the IMF database;

Figure 2 Unemployment EU 1998-2009 % of Workforce

Source: http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/weorept.aspx?sy=1998&ey=2009&ssd=1&sort=country&ds=.&br=1&pr1.x=64&pr1.y=9&c=184%2C132%2C134%2C136%2C112&s=PPPEX%2CLUR&grp=0&a=

In fact, as can be seen from the above IMF sourced data, job growth amongst the selected countries was strong to 2001, with a small correction (dot com crash) induced drop through 2003 and a gradual easing to 2007 with another recession drop.

An obvious recessional side effect would be the restriction on discretionary entertainment income, like music, computer games and movies.

In Muriel A (2009 – P.38) he shows that the most affected are the 18-24 year old age group

Which are in the main the principle targets of the majority of new music releases.

Figure 3 Unemployment by age Group 2005-2008 (Muriel A, 2009)

In Hansard (HL Deb, 3 November 2008, c12) (House of Lords debates)

Lord Myners (Parliamentary Secretary, HM Treasury; Labour) said:

“Let me say a few words regarding the present economic environment, which noble Lords know is very difficult. No Government can prevent a downturn in the face of the unprecedented shocks we and others are facing….

The latest economic data show very clearly the task we are facing. The preliminary estimate of GDP growth recorded the first quarter of  negative GDP growth for the third quarter of this year since the second quarter of 1992 and the weakest since the final quarter of 1990. Data suggest that individuals are reigning in spending on discretionary and big-ticket items as disposable incomes have been squeezed by high energy prices, alongside growing uncertainties arising from the global financial situation. Consistent with consumers acting more cautiously in this challenging environment, retail sales fell in September.”

In bringing up previous recessions we thought we would chartthose recessions over the Album sales chart (In case dear reader, this is yourfirst visit; we have displayed this next chart before.)

Figure 4 Recessions -vs- Record Sales (Albums) 1972-2008 UK

Sources: BPI – Albums Shipped and UK GDP.

The years since 2000 have not been easy for the members of the EU with ups and downs.

Figure 5 National Currency (EU VS EU/USD) PPP

Source IMF Data referenced in Figure 5

Which appear to be reflected in the number of albums shipped in the UK in Figure 4 above.

Of course, as Manufacturing moves eastwards, the Euro appears to be loosing ground on a yearly basis with the average European citizen now contemplating…..

Figure 6 EU GDP based on PPP Share of World Total.

Source IMF Data IMF Data referenced in Figure 2

Vastly reduced buying power of overseas goods priced in American dollars [e.g.: Music, DVD's, Games].

The Hunt for The Job Loss Data or We look for the 186,000 missing Jobs

There are a recorded 11,372 incident reports in the ERM database, yet Tera have failed to provide even a cursory analysis of the ERM reports relating to the limited (country) dataset they have elected to dissect.

We spent considerable time examining the stated reasons for job losses in the EU from companies in the ERM database.

Cinram are one the largest manufacturers of recorded mediaproduct in the western hemisphere.

They recently made an announcement that they had lost the Warner DVD business to a French Company and that it would affect their operations globally including Spain.

TORONTO (February 1, 2010) – Cinram International Income Fund (TSX: CRW.UN) announced today that it has received written notice from Warner Home Video Inc. [“WHV”] that WHV has exercised its option to terminate its service agreements on July 31, 2010. The notice covers all Cinram entities globally and will directly impact operations in North America, Mexico, UK, France, Germany and Spain.

WHV revenues for 2009 represented approximately 28% of the total consolidated revenues of Cinram International Inc.

From the Cinram about us page :

Today, we are the world’s largest independent provider of pre-recorded multimedia products and related logistics services and have the capacity to manufacture 1.77 billion DVDs per year. Our major customers include Warner Home Video, Warner Music Group, New Line Home Entertainment, Twentieth Century Fox Home Entertainment (Fox), Metro-Goldwyn-Mayer Home Entertainment (MGM), Artisan Entertainment/Lions Gate, Alliance Atlantis and EMI Group plc (EMI).

We  searched for Cinram on the ERM system.

Company: CinramGeographic location- Country:                      France- Region:                       Est ; Lorraine- Affected unit(s):           Saint-Marguerite (Vosges)Company – Group : Cinram - Sector : Manufacturing : Manufacture of television and radio receivers, sound or video recording or reproducing apparatus and associated goods (Nace DI-DL)- Number employed:    103

Employment effects – Announcement Date: 16-05-2003-Planned job reductions: 103- Type of restructuring: Internal restructuring- Employment effect start: 01-05-2003- Employment effect timeline: 01-12-2003

This entry stated that the reasons for the job losses wereformat change related:

Cinram announced the closure by the end of the year of its unit located in ‘Sainte-Marguerite’. This is due to the changing market of video tapes since the introduction of the DVD. The company do not want to dismissed all the workers. They might be transfered to another unit in ‘Haute-Normandie’.

The announcement didn’t mention either file sharing or CD or DVD piracy.

The Warner/Cinram announcement stated that Warner were merely moving their jobs from Cinram to Paris-based Technicolor. Again, no mention of job loss due to Piracy.

In fact our search using the following parameters, found 6882 out of a total of 11374 restructuring cases that might qualify as the data the Tera report was referring too.

Figure 7 Our Search Criteria on ERM

Ann date

Country

Company

Type of restructuring

Sector

Planned job creation

Planned job reductions

18/03/2010

CzechRepublic

AFSI
(Advanced Filtration Systems Inc.)

Business
expansion

Manufacturing

185

15/03/2010

Austria

Gabor

Offshoring/Delocalisation

Manufacturing

170

15/03/2010

Poland

Huta
CMC Zawiercie

Internal
restructuring

Manufacturing

120

10/03/2010

United
Kingdom

Toyota

Internal
restructuring

Manufacturing

150

10/03/2010

Germany

ZF
Friedrichshafen

Internal
restructuring

Manufacturing

550

9/03/2010

Germany

Getrag

Internal
restructuring

Manufacturing

700

4/03/2010

United
Kingdom

Cadbury

Merger/Acquisition

Manufacturing

150

4/03/2010

United
Kingdom

Thyssenkrupp
Tallent

Bankruptcy/Closure

Manufacturing

490

3/03/2010

CzechRepublic

Brose
CZ

Offshoring/Delocalisation

Manufacturing

300

2/03/2010

United
Kingdom

AstraZeneca

Bankruptcy/Closure

Manufacturing

1200

We reviewed a small dataset (the largest by job losses) of these 6,882 announcements, (N=<200) but failed to find any that claimed that closure, sale or relocation was due to anything other than economic downturn, change in corporate ownership or alterations in employment policy.

Specifically, not one of the (approx 2.5% of the dataset,) of the results we reviewed included the words, piracy, file sharing or cited lost sales through unknown channels (piracy….) as a reason for job loss.

We then caused to be extracted from the database, all records that dealt with loss of jobs exceeding 999.

119 ERM records matched our search criteria starting from 1/03/2001 and ending 15/03/2010

Figure 8 Subset of Job Losses where Jobs lost >999 on ERM

By totaling job losses and subtracting new jobs, we were left with a total of 796,543 reported job losses throughout the EU.

Figure 9  Breakdown of EU Job Losses on ERM

We removed the Hungarian police, the British Civil servants, Health workers, Mining, Real Estate Salesman, Teachers, farmers and mortgage brokers and were left with : 463,543 lost jobs.

Figure 10  Breakdown of EU Job Losses on ERM Manufacturing, Transport and Retail Only

It was starting to look like we were going to have a problem getting to 185,000 job losses in the creative industries, just for 2008 . (The 119 subset dataset covers 2001-2010.)

By the time we remove the motor vehicle companies, steel working companies and Newspapers (it is not possible to pirate a physical newspaper) we are left with only about 200,000 job losses spanning nine years.
So the number quoted by Tera in their report “186,000” in 2008 alone is impossible amongst those companies that are large enough to qualify for (almost) automatic reporting to the ERM database.

Exceptions to inclusion include very small companies.

Possibly the Tera report is referring to closures in the largest portion of employers in the creative industries, the small home based end of the music industry.

The local pub gig bands and the mom and pop, music companies. So was the Tera Report referring to job loss in the Soho/SME end of the music business?

Indie artists and Innovation versus the Big End of Town.

Last week we quoted from Margrét Sigrún Sigurdardottir PhD dissertation entitled “Dependently independent Co-existence of institutional logics inthe recorded music industry,” which breaks down the constitution of the Core Music Industry in the UK:

Of all the cultural and creative sectors the music industry is the only one where employment has been going down. This corresponds to the falling total sales of music in the world, claimed to be a result of increased illegal file sharing and digital sales not making up for the drop in physical sales (IFPI, 2007)

So far, she would seem to agree with the Music Industry Claims. But now she creates a new track by proving that the biggest employer in the music business is the Soho and SME businesses….

…the music industry is dominated by small firms. With 77.8% of the businesses in the industry employing fewer than five people (although this is slightly lower than the creative cultural sector average of 84.7%) 13.2% have 59 employees, 5.2% employ 1019,leaving only 3.8% with more than 20 employees.

She concludes…

From these figures it is clear that this is an industry of small firms with only a handful of very large firms. The figures presented above cover all of the music industry in the UK.

Over the last twelve months we have researched how the smaller companies feel about file sharing, P2P and the whole internet “sharing” thing.

The Internet has literally hundreds of anecdotal experiences of these small bands, whom all appear to state quite categorically that file sharing appears to assist their Public Relations and Marketing efforts.

In (Devenish 2004) Wilco’s business manager Tony Margherita was asked about the effects of file sharing on his bands revenues:

‘‘As a musician, you want your music out there, you want it out in as many places as it can possibly be.’’ This increases the chances more people will pay to see your band when it comes through town (and perhaps buy merchandise), or that a newfound fan will purchase one of your other albums

Wilco is the Chicago-based rock band who was dropped by Warner after the major label deemed their album ‘‘uncommercial,’’ the group searched for a new label, and the tracks leaked onto file-sharing networks—so they put the album on their website so fans could listen to it for free. By applying the major labels’ logic, this should have cut into sales, but the exact opposite happened.

Wilco’s Yankee Hotel Foxtrot ended up debuting in the  Billboard Top 20 and went on to be the band’s biggest album, selling a half million copies, double that of its previous album. The publicity surrounding the plight of the record combined with the free distribution of their music on the Internet undoubtedly generated more sales for the little band that could.

Too Much Joy’s Tim Quirk on file sharing…

‘‘As a musician, you want your music out there, you want it out in as many places as it can possibly be.’’ This increases the chances more people will pay to see your band when it comes through town (and perhaps buy merchandise), or that a newfound fan will purchase one of your other albums

 The activity of the larger record labels in attempting to combat file sharing appears to provide entertainment for the smaller labels.

 (Nelson 2003) quotes label owner Rich Egan, owner of independent record label, Vagrant in New York.

Vagrant and many other independent label owners cheer them on. File sharing, these owners say, helps their small companies compete against conglomerates with deeper pockets for advertising and greater access to radio programmers.

And they do need help. For the small labels, a top ten hit is rare and file sharing appears to be the only methodology that levels the public relations and marketing playing field.

(Nelson 2003) observes that for some independent label executives, their confidence [existence?] stems from subscribing to unconventional barometers of success and that success (profit), can be achieved in sales of as little as 10,000 to 25,000 copies of a record.

The industry, which successfully sued The Pirate Bay operation, claims that more than 1bn illegal music downloads were made in 2007, crippling the industry. I don’t approve of illegal downloads, but where is the evidence of economic damage? Look at the figures. In the last quarter of 2008, album sales in the UK were – wait for it – 0.9% up on the previous year, when the economy contracted by 1.5%. And UK royalties for songwriters rose 8% in 2008. Recession? What recession? Overall album sales, which some had predicted would collapse by more than 10% in 2008, fell by only 3.25%, while digital albums rose by 65%. And the singles market? Why, 2008 was the biggest year on record in terms of units sold across all formats.

  Music industry must change the record Thursday 21 May 2009

Victor was almost right. Because 2009, beat 2008.

Most of the smaller artists, have normal 9-5 jobs whilst they are waiting for their “big break” on the Internet.

Internet 1998 start-up online Indie music seller, CD-Baby has demonstrated that that there is a demand for “unknown” non-advertised music artists.

From humble beginnings

Figure 11 CD Baby Sales 1998-2005 Solid Steady (No Marketing Budget) Growth.

The business grew to nine digit numbers today.

278,510 albums being sold on CD Baby

5,339,025 CDs sold online to customers

$107,769,092 paid directly to the artists

However, growth in 2008 dropped to only 2% – but compared to the rest of the industries 14% (apparent) loss, CD-Baby did reasonably well.

Therefore, if file sharing is responsible for damaging sales, (as per the Tera Report) it would appear that file sharers are staying away from sharing unknown titles from unknown indie artists that can be listened to free online anyway…

The argument defies logic, or suggests that file sharers are only interested in the big name acts.

But we decided we would put it the test just in case Tera Consultants were wrong.

Figure 12 CD Baby Top Sellers – Texas Hippie Collection iTunes or Free…

The consumer option is (1) buy the album on iTunes, (2)  listen to the podcast of the texas hippie collection (for free) or (3) I could do the pirate thing search for it on the ed2k networks.

Fifteen versions of the files with around seven hundred offering to share it.

Figure 13  Texas Hippie Collection on eMule ED2K – 15 iterations.

Yet the Band is selling copies and is at the top of the CD-Baby topsellers list.

At this stage this is an anecdotal case history, however, the data obviously allows for an in depth empirical study of “un-commercial” works being:

Podcast, Streamed, purchasable via digital (CD Baby), iTunes and via P2P.

For the moment, it would seem, that the Independent labels, whom have to fight harder to survive and whom in the main consist of companies with less than 9-20 employees, generally believe that file sharing assists their marketing efforts and the sales figures would appear to confirm that theory.

The difference between CD Baby, the other indies and the big four music companies?

1.   The indies didnt sue their customers.

2.   The indies depend on talent and social networking, including P2P to get the word out

3.  The indies usually trade in one currency or small amounts and are not dependent on variations in the foreign exchange rates to determine whether or not their VALUE is up or down for the year.

We tried to think of another reason why the Tera report arrived at a vastly different conclusion to ourselves in relation to the job loss data.

Possibly the Tera Report had forgotten to add-in the video production revenues from the fastest new growing segment of the industry, music videos.

But surely, that would only occur if they got their NACE categories wrong and omitted whole sections of newly categorized industries.