Hollywood and whine: why are democrats helping the entertainment industry stamp out new technologies that fuel economic growth?

Washington Monthly, Jan-Feb, 2003 by Brendan I. Koerner

Yet once again, moguls are warning that a new technology will destroy the creative impulse. In November, for example, Star Wars producer Rick McCallum went so far as to equate the fight against file-sharing to the hunt for al Qaeda, telling an Australian audience that the effort to thwart illicit movie downloads needs to be "as concentrated an international event as the war on terrorism." He went on to claim, without substantiation, that the music business had already lost 50 percent of its revenues due to Napster and its descendants.

There was a good reason for McCallum's failure to footnote: the figure is entirely bogus. Forrester Research estimates that music sales have dropped off only 15 percent over the past two years, and that the decline had little to do with music downloads. "There is no denying that times are tough for the music business, but not because of downloading," says John Bernoff, a principal analyst at Forrester. "Plenty of other causes are viable, including the economic recession and competition from surging video game and DVD sales." Of course, digital technology may eventually cut into Hollywood's revenues (welcome to the wonderful world of capitalism). But the damage will likely be nowhere near the levels predicted by Hollywood alarmists. Stan Liebowitz, a professor at the University of Texas at Dallas School of Management, recently published a comprehensive estimate of how free MP3s will affect the recording industry's bottom line which predicts as a worst-case scenario that sales will drop by 20 percent. "I wonder how far we, as a country, would be willing to go to protect the record industry from a 20 percent decline in business," he says. "Are recent proposals such as the Berman bill, which would allow record companies to tamper with other people's computers, going too far? My own view is that such proposals are going too far."

Moreover, as Forrester's Bernoff points out, that 20 percent figure presumes that Hollywood does nothing further to adapt to the new competitive environment. "[Record] labels will soon discover that there are several simple ways of satisfying today's sophisticated digital music consumers," he says, such as allowing per-song "micropayments" and the sort of computer-to-MP3-player transfers that current Democratic bills would stifle. Indeed, Hollywood's sky-is-falling shtick has more to do with opportunism than genuine fear. "The folks making the presentation to [Democrats] are obviously sugarcoating this as being all about copyright protection, and crying wolf that Napster is at the door," says John T. Mitchell, legal director of Public Knowledge, a public-interest group that tracks digital-rights issues. "But a lot of the solutions being offered don't really have as their objective copyright protection. They're designed to restrain perfectly lawful uses, in order to extract more compensation from the public."

Reading Hollywood's Script

Yet the Democrats continue to parrot the Hollywood line. Last February, for example, in a prelude to the introduction of his digital watermarking bill, Biden issued a 52-page report entitled "Theft of American Intellectual Property: Fighting Crime Abroad and at Home." Arguing that the entire entertainment industry will collapse "if technological advances [are] left unprotected," Biden wrote that "software piracy alone cost the U.S. economy over 118,000 jobs and $5.7 billion in wage losses" in 2000 alone. And where did Biden get these eye-popping figures? The Business Software Alliance, a Microsoft lobbying group whose statistics should be taken with a grain of salt. Not only do the alliance's numbers pertain to software rather than music or movies, they also assume that every pirate would purchase a copy if their free access was curtailed. The flaw in the logic here is easy to spot--it's as if The Washington Monthly contended that everyone who read a friend's copy of the magazine counted as a lost sale.