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January 07, 2009

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As a former attorney with copyright litigation experience, I was intrigued by your post. I clicked on the embedded links to try to better understand the band's business model and to better understand the claim that "strong IP" suffered some kind of a serious blow (what you called a "big hit"). From what I can gather from the posted links, however, there is nothing afoot here other than a "loss leader."

As I understand the facts, the band sold $1.6 million in boxed sets and the like, while also charging money for commercial distribution (I assume that those are royalties paid by businesses when a snippet of the music is played at a restaurant, etc.) The group additionally allowed free downloads of the music under a Creative Commons license. Total take under this cross-subsidized model: $1.6 million.

What's the significance of this for "strong IP"? One way to look at this set of facts is to say that strong IP is still a crucial part of the story. The group used "strong IP," meaning simply traditional, enforceable intellectual property rights, to secure payment on certain forms of its music, then gave away other forms as a kind of "lost leader." On this analysis, there's nothing noteworthy, much less earth-shattering, about the business model, and nothing "weak" about the group's approach to selling box sets and other forms of property for cash. Had someone ordered a high-priced box set from Amazon (or let's make it interesting and let's imagine that a retail distributor ordered 1,000 box sets, and agreed to pay $350,000), but did not pay for those products, they would be sued. And the band would be paid only by enforcement of its "strong IP" rights. I can assure you that they would be singing the praises of "strong IP" in the courtroom. In contrast to your conclusion that strong IP took a "big hit" as a result of this publicity stunt/deployment-of-a-garden-variety-marketing-tool, it looks to me that the facts instead reveal that "strong IP is essential for profitable innovation...."

A couple of other points should be noted, as people routinely over-draw conclusions about the utility of open innovation (which admittedly can be important where applicable). The business model of NIN is a narrow one: it is simply not widely applicable, at least where a band needs to generate significants funds for marketing and administration. As the embedded articles point out, the group used the label to create a huge fan base. They couldn't have pulled this music-is-free feat off without that fan base. The fan base, however, was created precisely from the use of "strong IP:" the record label never would have invested marketing money had it not been assured of its ability to enforce its rights. Strong IP thus lurks in the background.

The only thing that has changed, if anything has changed at all, is the context within which popular bands can knife their labels and throw them overboard once the fan base is economically viable. You can bet your bottom dollar that record labels will price this move into their next round of contract negotiations. Over time, there may not be a breakthrough here, and there certainly isn't a conceptual breakthrough regarding the need for "strong IP" as it attaches to at least the core of one's product or service offering.

The real story here seems to boil down to this: a band successfully cut its record label out of the distribution chain. As an attorney, I can say that I've seen that pattern before, and quite often, in any number of industries. There's nothing remarkable about it. Aside from the atmospherics (i.e., the sort of adolescent feel good notion that the record label got what was coming to it, and that many fans received a product for free), I'm not sure what the claimed conceptual breakthrough is here concerning IP. My local grocery gives away quite a bit of cheese, and Costco lavishes food on its shoppers, but neither act heralds the end of a legal era. The reports of strong IP's death would appear to be premature, at least on the reported facts. Please let me know if I have missed something, either in the facts or in the analysis.

The battle of ideas is not won or lost in Congress, or even in elections, but in the long assessment of history. Just ask Qeng Ho.

I won't give up*_*

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