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Commentary

Napster and a Case for Strong Encryption


     
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On July 26th, a federal district court judge in San Francisco will hear arguments in a lawsuit filed by the vastly successful heavy metal band Metallica and a trade group for the recording industry against Napster, a software company. Metallica and the industry trade group allege that Napster, which borrows the nickname of its teenage founder, is aiding music consumers in defrauding artists and violating their copyrights.

The Napster case signals the next major battle in the revolution over the way we enjoy music, and it has the industry somewhere between running scared and trapped snake angry. Napster’s software allows users to efficiently search the Internet for music stored on personal computer hard drives in the popular MP3 format. The industry claims much of this music is shared in violation of copyright and fears Napster and its cousins, like Gnutella and Freenet, are set to bleed the industry dry.

What is bad for the industry is not necessarily bad for the consumer. Software like Napster coupled with cheap, high-quality recording and reproduction technologies have caused musicians’ production, distribution and marketing costs to plummet. As the cost of reproducing music decreases, the supply of music should expand so greatly as to drive the market price negligibly low. Direct online marketing and distribution will cause an explosion in the amount of music available and dramatically lowered prices for consumers.

Stiff competition, lower prices, and fixed capital investments that will be eventually written-off are not industry’s only worries. With the advent of MP3 technology and sites like Napster, artists are not getting paid their fair dues because their copyrights are unenforceable. The fear, and the reason we grant copyrights in the first place, is that without copyright protection the financial return for talented, artistic people would fall so low that they would seek some other occupation and no longer produce music. Unless we can guarantee a return to artistic effort, Napster and other technologies promise an explosion of music available, but much may be just junk. This is bad for consumers. We want to hear talented artists, not necessarily every garage band in America.

The contention is not that quality music will disappear, but that despite the growing flood of total music, the volume—not just the percentage—of quality music will diminish. This situation is similar, but not identical to the famous economics parable, “The Tragedy of the Commons,” but run in reverse. The tragedy of the commons is that a commonly owned resource will be overused until it is degraded. This occurs because I cannot prevent others in the community from using the resource. Therefore, my incentive is to squeeze all the value out of the resource that I can as quickly as I possibly can. However, if I have that incentive, so does everybody else. The result is that we deplete and degrade the resource, and in the end we are left with nothing. The usual solution of commons problems is to assign transferable property rights to the resource. The exclusivity property rights create allows someone to profit from the resource, and thereby gives them incentive to care for it.

With the advent of Napster and its progeny we’ve seen the reverse occur. “Resources” which once were vested with property rights have been turned into commons. Musicians can no longer exclude non-paying users of their “resource”—their music. Therefore, musicians no longer have the incentive to look after that resource, and their reasons for producing more are greatly diminished. The artists pursue other alternatives, becoming Realtors or café barristas. Mitigating this is the fact that making music is fun. Then again, for many, much of the fun is in the dream of hitting it big someday.

The problem we face, then, is how to protect artistic investment while adopting new production and marketing technologies.

The key may be in convincing the federal government to allow U.S. citizens access to strong encryption technology; access we are currently denied by law. The artist would sell not just the music, but a user-specific key to the heavily encrypted music stream. Any attempt to upload the downloaded material would violate the key and not allow the material through. This would mean that anybody, including major artists, could get paid for their work, but we’d still enjoy the phenomenal “economies of technology” in terms of reduced cost of production, distribution, and marketing, as well as lowering barriers to entry into the field. If a band wanted to freely distribute their music online, they could. If they wanted to get paid for their music, they could if consumers were willing to buy.

The encryption used in such schemes so far is not strong enough to protect intellectual assets. Stephen King’s recent novella was very moderately priced and distributed on the web. It was quickly cracked and the cracked version was redistributed. There is always the possibility that hackers will find some way to bypass encryption. But much, much, stronger encryption exists than is legally available to U.S. citizens. While it is probable even such strong encryption could be broken, perfection is not the relevant standard. We want to simply make it more difficult and more costly for hackers to crack code, and we will observe reduction in copyright violations.

However, in an effort to protect us from drug-money launderers, child pornographers, and terrorists, the federal government is denying us the private and secure means to market artistic property that strong encryption would provide. Law enforcement is demanding increased access to our cyber-lives, which strong encryption would complicate. Recently, the Clinton administration has been weakening its stance on American-made strong encryption, now allowing U.S. companies to export in retail form even the strongest encryption available. But U.S. consumers are denied the same products.

Child pornographers and drug cartel money launderers are odious, and terrorists are, well, terrifying. They are demonstrably bad for our body politic. However, so is denying artists the right to earn a living with their work, and so is forcing Metallica and other copyright holders into costly litigation. With every protection we demand from government, we pay a price in lost opportunities. The price we pay by limiting strong encryption may be an artistically devastated culture.


Dr. Noel D. Campbell is a research fellow at The Independent Institute and teaches economics at North Georgia College & State University.






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