Friday, February 27, 2004

The Academy Awards will be held tomorrow night to acknowledge the elite of the film world. In fact, this month ranks as pretty important for much of the entertainment business, as music’s Grammy Awards aired back on Feb. 8.

These awards shows generate considerable interest, as fans root for their favorite artists, songs or films. Personally, I’ll be cheering on Peter Jackson and his magnificent “The Lord of the Rings: The Return of the King” for best director and best picture Oscars.

However, behind the glitz and glamour, both the movie and music industries face the formidable problem of piracy. People generally believe that stealing is wrong. For example, if someone broke into a local store in the middle of the night and snatched hundreds of CDs and DVDs, most would say that jail time was in order. However, lots of people — tens of millions of individuals apparently — lose their sense of right and wrong when the issue shifts to intangible or intellectual property.

The digital revolution in music and movies has not only offered consumers crystal clear music and greatly enhanced films, but it also has made it easy for people to violate intellectual property rights by downloading music and films illegally. Morally and rationally, though, no real difference exists between physical and intellectual property. After all, the true value of a movie is not the DVD itself but the quality of the entertainment offered. The CD’s value is not really its physicality, but instead the songs offered by writers, musicians and singers.

The music business has been hit hardest. The uproar started with the appearance of Napster in 1999. But even with Napster being shut down in 2001 because of lost court battles (it has since reappeared as a legal, for-pay music service), other services have continued to allow people to share music over the Internet without any compensation to the artists or recording companies holding copyrights. It should surprise to no one that music sales declined for four years in a row, from 2000 through 2003.

The movie business faces the same dilemma, though not yet on the same scale. But consider that illegal pirated copies of such recent blockbusters as “The Matrix Reloaded,” “The Hulk,” “Terminator 3: Rise of the Machines” and “Finding Nemo” were available for downloading before being released on home video. In fact, the Motion Picture Association of America has reported that 50 major movies were illegally copied and distributed in 2003 before being released in theaters.

Various rationalizations are offered for such illegal activity. For example, some try to justify their actions by declaring that CDs cost too much and/or that the industry has not done enough to offer music in a convenient on-line manner. For the sake of argument, let’s accept both premises. Does it follow that it is then morally acceptable to partake in music piracy? If I don’t like the way a business or industry prices or supplies its product, does that mean I have the right to steal that good?

Then there is the populist rant that only large corporations and big stars are hurt by illegally downloading music and movies. But stealing is stealing, right? It doesn’t matter whose property is taken. In addition, the list of those damaged by such theft actually is quite long, and includes many small businesses.

For example, songwriters don’t receive royalties. Theater owners pay a price.

Think about the impact on the hundreds of thousands of individuals working in the film and music industries, and the countless small businesses serving them.

Retail stores certainly get hurt. The Recording Industry Association of America released statements last year from artists and others regarding the ills of illegal downloading. Mike Negra, president of Mike’s Video, Inc., observed: “Before illegal file sharing, we operated five music stores in two different rural college towns. We now operate one. Since August of 2000, we have seen almost 80 percent of our music sales lost to piracy. … It is impossible, on any level, to compete with free, so it comes as no surprise that what was once the champion of developing artists and the cornerstone of music retail, the college market has for all intents and purposes been wiped out nationwide as a result of file sharing.”

Mr. Negra summed up both the moral and economic aspects this way: “The feeling of personal entitlement to free entertainment must be changed. If the distribution system between artist and consumer changes and eliminates retail so be it. However, no system, physical or digital, can survive while the option of free exists.”

Indeed, the music and movie industries themselves will be severely crippled if such theft continues. That means fewer choices in music and films for consumers.

The solution is multifaceted. Encryption technology needs to keep pace. New business models must progress, and in fact, most songs are now available on authorized on-line music services.

But government also has a job to fulfill its fundamental duty of protecting private property. The courts should be used to pursue copyright violators, as the music industry is doing. Law enforcement must step up. Frank Harrill, supervisor of an investigative team at the FBI’s Los Angeles office, recently told the Wall Street Journal: “We increasingly will be protecting intellectual property with the same vigor as physical property.”

James Madison, often called the “Father of the Constitution,” wrote:

“Government is instituted to protect property of every sort. … That alone is a just government, which impartially secures to every man, whatever is his own.”

If we want to secure private property and general prosperity, this must hold true in the digital realm of the 21st century just as it did in the late 18th century.

Raymond J. Keating is chief economist for the Small Business Survival Committee.

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