NCPA - National Center for Policy Analysis

How To Solve The Napster Dilemma

July 27, 2000

Napster -- the Internet music service -- facilitates the free exchange of copyrighted music. The Recording Industry Association of America argues that Napster allows people to copy and share music illegally. Most experts agree that widespread Internet distribution of copyrighted material will continue. How, then, will musicians and other artists get paid and be encouraged to continue creating?

Economists say the important thing is a legal environment that provides sufficient incentives to create and distribute intellectual work. Copyrights appear to be essential: the French tried to abolish copyrights after the Revolution, but within a few years only pornography and seditious material were published and copyright laws were restored.

Intellectual property owners must also change their business model -- how their product is distributed and paid for -- to deal with new technologies. They have done so before:

  • In the 1920s, there was heated debate over how the recording industry would make money when radio broadcasting gave music away free -- instead of a proposed tax on vacuum tubes, advertising allowed broadcasters to pay royalties to music owners.
  • In the 1980s, much personal computer software was copy-protected to prevent piracy -- but when consumers switched to copiable software for convenience, most of the industry eliminated copy protection.
  • Author Stephen King is experimenting with a "ransom" model by releasing two chapters of a book over the Internet and requiring readers to ante up for the rest.

The plan is somewhat analogous to subscribing to a newspaper or magazine -- the reader doesn't know what it is going to contain, but pays in advance. In fact, in the 19th century, Charles Dickens and many others published their books in serial form in subscriber-supported magazines.

Source: Hal R. Varian (University of California at Berkeley), "Economic Scene: The Internet Carries Profound Implications for Providers of Information," New York Times, July 27, 2000.


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