A few years ago, Canadian business guru Don Tapscott published a book called “The Digital Economy.” There, for the first time, I heard the term disintermediation. Tapscott is widely credited with coining the term and his book is regarded as foreteller (almost prophetically) of the state of digital economy today, 10 years on. Simply put, disintermediation (aka ‘removing the middleman’) denotes the demise of intermediaries who – for one reason or another – have become redundant within the supply chain because customers found ways to bypass intermediaries, mostly in order to save the costs involved in using their services.
Examples are ample: the postman lost to e-mail, the street corner grocer was swamped by supermarkets, shopping centers by malls, publishers are threatened by e-books, travel agents and ticket sellers were overtaken by online booking. Tapscott’s (paraphrased) argument is that intermediaries must deliver value beyond merely passing on services or commodities, if they want to avoid becoming redundant (being disintermediated.)
For the past few years, record companies have been trying desperately to avoid disintermediation
I followed a MetaFilter referral to the story of a US District judge who made an intriguing ruling against the Recording Industry Association of America. The RIAA claimed damages from Daniel Dove, owner of a torrent group called “Elite Torrents” for 17000 illegal music downloads. The RIAA argued that each downloaded file constituted a lost sale.
Judge James P. Jones’ groundbreaking ruling trashes Record Companies’ core argument against illegal downloads, namely that people who download music illegally represent lost sales because they get for free what they would have otherwise bought and paid for:
Judge Jones disagreed. “Those who download movies and music for free would not necessarily purchase those movies and music at the full purchase price,” Jones wrote. “[A]lthough it is true that someone who copies a digital version of a sound recording has little incentive to purchase the recording through legitimate means, it does not necessarily follow that the downloader would have made a legitimate purchase if the recording had not been available for free.” (Source: ArsTechnica.com, my emphasis.)
This is yet another example of how the interpretation of law changes in order to accommodate the peculiarities of our digital culture. Had Daniel Dove been arrested for shoplifting, the owner of the shop could argue successfully that each and every item Dove stole from his shop constitutes a lost sale because once the item is taken out of the store it is no longer available for sale. Digital merchandise is different.
- Digital merchandise can exist in an endless number of copies; it may be located anywhere online and is therefore easily accessible.
- Digital merchandise faces aggressive competition because people are often able to get items for free and, as a result, they often seek free digital merchandise
- Digital merchandise does away with intermediaries, including the companies that make up the RIAA. There is no reason to buy en expensive CD with 12 pre-selected tracks when one can buy and download any track s/he chooses to purchase.
- Digital merchandise is perfect for micro-retail. Online stores such as iTunes prove that downloading billions of tiny sound files can be a thriving business. Digital technologies facilitate simple, friendly avenues for micro-retail through digital shelves and simple micro-payment facilities.
The first distinction is the most pertinent one. Simply said, digital merchandise does not exist in a unique form – it’s an amorphous set of digits that make up a file that includes a song or a tune, a video, a book etc. Stealing digital merchandise is a punishable crime, but music owners and their representatives will find it almost impossible to translate the unique characteristics of digital merchandise into universally acceptable monetary values.
There is no doubt as to Dove’s guilt – he stole and distributed property that wasn’t his. In the past, Dove and other Elite Torrents owners were found guilty and sent to jail for other infringements of copyright laws (for example – when they released a digital copy of Star Wars Episode III: Revenge of the Sith a few hours before the movie’s theatrical release.) Judge Jones is clear in his ruling that – while the RIAA is entitled to claim damages, it is incorrect in arguing that every piece of illegally downloaded music would have been bought – had it not been offered for free. This ruling seems to give the RIAA leave to prosecute Dove for theft and – should they be able and wiling to – each person who downloaded what is, essentially, stolen merchandise. It appears, however, that Judge Jones’ ruling affirms what many people have been saying for some time now – that the problem of downloading pirated-digital merchandise cannot necessarily be remedied solely through the courts.
It has been argued that record companies are add no value as intermediaries and that, in fact, they have very little to do with, or consideration for, the musicians themselves. In a Helium article on the ethics of music file sharing, legendary Jazz pianist Herbie Hancock refers to a settlement reached between the RIAA and peer-to-peer (P2P) network Napster who, just like Dove, were charged and found guilty of facilitating illegal music downloads. Most of the money received through the settlement was divided between the record companies, practically leaving the artists out. Hancock said “I’m deeply concerned about the outcome of the online music conflict, and with good reason: playing music happens to be my livelihood. . . I feel cheated now that Napster is shut down and was forced into a deal, the courts gave millions to the record companies but the artists received zilch.”
Post-Napster, the record companies have scrambled to plug other holes that may cause leaks in their revenues, for example – the deal record companies made a few years ago with Apple’s iTunes‘ saw Apple going back on its promise to sell al tunes at a fixed price of 99c, instead, they offer tunes at a price-range of 69c to $1.25.
Judge Jones’ ruling is likely to be appealed, yet – it shows that 21st century digital economy remains steadfast in its drive to disintermediate superfluous suppliers and, while record companies and other ‘go-betweens’ do their best to fight the odds, it may happen that the courts will move ahead with the times and deny intermediaries the right to seek remedies through traditional litigation.