A Lesson From Japan's CD Rental Industry
CD rental shops are big business in Japan. Customers can pay a small amount of money and rent CDs for varying time periods, some as short as a few hours. It is common knowledge in Japan that most customers of these shops make copies of the CDs. The social acceptance of this practice is even to the point where many shops offer blank CD-Rs with rentals. Why would the recording industry allow such a system to flourish? Money. Lots of it. Compulsory licensing of all CD rental businesses resulted in actual royalites collected of 3.6 billion yen in fiscal year 2001, as reported by JASRAC (Japanese Society for Rights of Authors Composers and Publishers).
Some American bloggers have taken notice: posts at the Smart Mobs blog and MIT's Technology Review blog have discussed the difference in attitudes between US and Japanese companies, specifically discussing the Japanese CD rental phenomenom. The MIT article states that Japanese companies...
...are seeking ways to rebuild consumer loyalty rather than demand customer obedience. This is consistent with general trends in Japanese industry to study fan groups, subcultures, and other consumption communities as, in effect, “petrie dishes” where experimentation and innovation occur.
Could such a system work in America? Not without legal changes, but the Japanese developments also required new laws that were enacted only in the last decade. In the US, we have to deal with 17 USC 109 (b)(1)(A), which states:
(b)(1)(A) Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording or the owner of copyright in a computer program (including any tape, disk, or other medium embodying such program), and in the case of a sound recording in the musical works embodied therein, neither the owner of a particular phonorecord nor any person in possession of a particular copy of a computer program (including any tape, disk, or other medium embodying such program), may, for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord or computer program (including any tape, disk, or other medium embodying such program) by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit educational institution. The transfer of possession of a lawfully made copy of a computer program by a nonprofit educational institution to another nonprofit educational institution or to faculty, staff, and students does not constitute rental, lease, or lending for direct or indirect commercial purposes under this subsection.
But why be concerned about renting physical CDs when people are flocking to digital distribution via the internet? The point is that Japan's industry had a copyright problem with CD rentals. Society wanted to rent CDs, copyright holders were scared of piracy. Here's the wonderful part - a solution was made that allowed BOTH sides to get what they wanted! Compulsory licensing of shops brought in a lot of money for the copyright holders. The consumers were able to use their preferred means of distribution. Everyone wins in this scenario, and the consumers might actually be happier with the big companies as a result. We can apply this way of thinking to peer-to-peer and digital distribution. If you can't stop the trend, don't fight with litigation and threats and alienate the people who are responsible for all of your sales. Look for a solution where everyone is better off. Compulsory licensing might be a viable solution for the future of P2P. Why not just have everyone pay their ISP a fee which would go back to the copyright owners and allow the creators to get royalties? The industry isn't going to make P2P go away no matter how hard they try. The real trick is how to use technology to give benefits to both copyright owners and consumers.
No, the industry is not going to make p2p go away, but they will eventually get either the courts or congress to impose regulation.
Under your suggested scenario, all legitimate p2p networks carrying (probably) a majority of infringing content would have to pay a licensing fee or be shut down. I think this probably could work, as long as the p2p network could make enough revenue to cover its fees and costs... Otherwise, under current law, the courts could recognize a requirement that creators of p2p software make reasonable modifications to their software in order to prevent infringement... Either way, such networks will not survive in unregulated form...
Posted by: Trevor Hill | October 07, 2004 at 07:46 AM
I have to disagree with your @money, lots of it@ statement: 3.6 bln. yen is not that much money (about $35 mln.) and the loss resulting from CD copies are much worse: think you can rent a CD single 3 days after its release (3 weeks for an album) for about $1 (resp $3) and copy it...
I would rather think that the recort industry just missed the chance to stop CD rental shops and now it's too late...
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