Government confirms disconnection plans

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The Queen's Speech didn't mention it, but government are pressing ahead with its plans to disconnect filesharers:

The most headline-grabbing part of the Digital Economy Bill will be a clampdown on onlinepiracy. Last month, Peter Mandelson set out the government's plans for a scheme which would see persistent online sharers of copyrighted material sent a series of warning letters before having their broadband connections slowed down or even suspended.

Music companies welcomed Mandelson's move, which goes further than the measures suggested by Carter in June's Digital Britain report, but internet service providers have warned that the cost of implementing the measures will outweigh the benefits.

There are also fears that innocent internet users could have their wireless broadband networks hijacked by pirates and fall victim to the tough new regime. One of the UK's largest internet service providers, TalkTalk, has already warned that it will launch legal action if the plan is put into action.

Meanwhile, the Times Online has produced a graph demonstrating that while the music labels are losing revenue, musicians are getting more revenue:



This shows the total revenues for the UK music industry from 2004 to 2008 -- the years that've been supposedly affected by the upsurge in file sharing. Overall revenue has increased slightly and is now just under £2.3 billion. The differently-coloured sections refer to different segments of the industry. From the top, they are:

  • Red - recorded revenue to labels. I.e. revenue from sales of recorded music, going to record labels
  • Grey - live revenue, to promoters.
  • Light Blue - recorded revenue, to artists.
  • Medium Blue - live revenue, to artists.
  • Dark Blue - PRS revenue. This is money the PRS collect from venues and radio stations that play music. This money goes to artists, munus the PRS's administration charges (about 8%).

The three blue sections, taken together, represent the amount of money going to artists. This is increasing. Those people who claim that file sharing has reduced artists' revenue will find no support in these figures; on the contrary, if anything file sharing has increased the amount of money going to artists.

The red and light blue sections together represent revenue from sales of recorded music. Note that labels have always got a larger share of this revenue than the artists who actually made the music. Is this fair? I'm sure the record labels think it is.

As Shane Richmond of the Daily Telegraph points out:

The big record labels have always put their interests before those of their artists. Artists are just useful for winning sympathy.

What’s useful about this analysis is that it pulls apart the myth that the internet is killing music. The bit of the music industry that’s based on goods that are infinitely replicable at very low cost – MP3 files in this case – is in trouble. The bit that’s based on scarce goods – live performances – is doing better than before.

Expect the record industry to continue to try to get its business model enshrined in legislation.

The red section represents revenue to record labels. This is declining, even though the total revenue of the music industry is increasing. It's reasonable to conclude that the labels are being hurt by the new realities of the music industry in the digital age, which includes file sharing.

While the labels are getting less money, artists are getting more money. This is exactly what you'd expect, because the record labels are an intermediary between musicians and music fans. One of the main effects of the internet has been to do away with intermediaries.

The music industry overall is healthy -- its revenue increased in 2008, during a recession -- and the amount of money going to artists is also increasing. There is therefore no economic justification for disconnecting file sharers to prop up a failing segment of an otherwise thriving industry. The future will see record labels as they are: parasites that the internet has obsoleted, who are attempting to use the law to negate their irrelevance. New technology always obsoletes sectors of the economy -- consider what the motor car did to horse traders -- and this is to be welcomed if we want Britain to be a thriving modern economy.


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