File Sharing Is Not Pollution, And You Don't Need An ISP 'Tax' To Deal With It

Economics

from the sorry,-will dept

I like Will Page, the chief economist for PRS for Music (a UK collection society), quite a bit. We’ve had a number of fun conversations about the music industry and music industry economics — some of which we’ve published here. While there are plenty of things I agree with him about, there are still many points on which we disagree. His most recent paper, advocating a mandatory ISP fee for file sharing (pdf) is a point where we completely disagree. Page’s paper is getting some attention, and he presented it at the same event where Peter Jenner just called for a blanket license as well. But I fear that Page’s paper, while it digs into some economic concepts, includes a few mistaken assumptions that drives the entire paper offline (though, in fairness to Page, he clearly states that for you to accept his thesis, you need to accept his assumptions).

The key assumption in the paper is the idea that file sharing creates a “negative spillover.” He’s basically saying that file sharing is pollution — creating a negative impact where the cost is borne by different parties than those responsible for the problem. Such situations are cases where there is a “market failure.” In theory (and there are some important recent challenges to some aspects of this theory), if the costs are not borne by those creating them, then it could create an inefficient outcome, potentially requiring some sort of intervention, either in the form of regulation or voluntary restraint. But, you have to be very careful in what you consider “pollution.” After all, one could argue that the creation of, say, email represented “negative spillovers” for the makers of fax machines. After all, it created a “negative impact” on fax machine makers, borne by a different party than those who created it (internet folks). But, of course, that’s ridiculous. That’s just innovation and competition at work.

And, the claim of “negative spillovers” really doesn’t hold up under scrutiny. Normal pollution generally involves companies doing the polluting and the public bearing the costs, in some manner. But that’s not the situation with file sharing at all. The public isn’t being harmed at all. In fact, they’re better off. And, according to Page’s own research, there’s no evidence that musicians are worse off either. Also, it’s not like the amount of music being created is going down. It’s actually going way up. The only “harm” being done is to a few companies that make up the recording industry. That really doesn’t sound like pollution. It sounds like competition and innovation. We should never mistake a more efficient market for pollution, but I fear that’s what Page is doing here.

Page’s report does suggest one other area where there might be some pollution: in the broadband networks. This is the somewhat ingenious part of the argument. He’s effectively making the argument that the pollution is that more file sharing will clog broadband networks, so it’s actually in the best interests of the ISPs to “tax” the behavior to decrease the clogging. ISPs have long resisted calls for any sort of blanket licensing, but they’ve also talked up supposed claims of “clogged” broadband pipes from too much traffic — usually in attempts to fight calls for net neutrality. So by saying that such a tax would decrease congestion in the networks, Page has sort of caught the ISPs at their own game, and given them a “solution” to the problem. The only issue? The “problem” of network congestion is more or less a myth, used mainly by lobbyists to ward off net neutrality legislation. The broadband providers don’t really have a congestion problem, and a music tax isn’t going to help solve this non-existent problem anyway.

Again, to be fair, Page more or less admits this in a paragraph towards the end:

We want to make it clear that neither of the above-mentioned options could be considered without accepting that some sort of market failure has occurred and that in consequence some form of regulation is required, and that regulation should seek to put incentives and structures in place so that a market-based solution to the value of media on networks can evolve.

But, of course, most people will miss that paragraph and won’t necessarily consider the assumptions being made.

I also think that the paper doesn’t recognize the inefficiencies and economic costs created by blanket licensing/collective licensing regimes (though, to be fair, that wasn’t the focus of the paper at all).

Either way, I chatted briefly with Page while writing this up, and he pointed out that the paper is focused specifically on the realities of the UK market under the Digital Economy Act, and that it shouldn’t be generalized for other markets — which, again, is a fair statement, though I’m not sure it changes any of the economic assumption questions (and, also could make the paper itself obsolete if the DEA is repealed, as some still believe will happen). Either way, we’re going to try to find some time in the near future to have a more thorough discussion/Q&A on the topic and see if we can dig into some of those assumptions.

Filed Under: file sharing, isp tax, pollution, uk