Monday, January 31, 2005

Grokster and the financial future of America

Entrepreneur Mark Cuban has an excellent piece on his blog regarding MGM vs Grokster a U.S. Supreme Court case scheduled for next month.

I remember being very nervous back when I was in college.

There was very real discussion about the US losing its station in the world as the worlds most powerful nation. There were hostages in Iran. The Olympic boycott. The Japanese Stock Market was booming and many thought it wouldnt be long before our economy would be second to theirs. The US auto industry was under attack by imports. Inflation was at record highs.

At Indiana University, our school newspaper had headlines from around the state. I knew that Anderson Indiana had an unemployment rate of more than 20 percent. Numbers that people were suggesting reflected depression era depths. Other cities were almost as bad.

My fellow students werent quite brimming with optimism. As I got ready to graduate, getting an interview was a battle.

Fortunately for me and many others, while our manufacturing economy was taking it on the chin, the labs at Xerox and the garages in Silicon Valley, Seattle, New Mexico and the offices on Rte 128 in Mass and in Armonk NY , among many others, were working late. The personal computer business was getting ready to explode.

The history of computing and in the particular the microprocessor revolution is well documented. What may not have been nearly as well understood , and this is purely my opinion, is the role it played in revitalizing not only our economy here in the US, but how we felt about ourselves.

In a scant 5 years, college kids went from worrying whether they could get jobs, to being positioned at the lead of the new personal computer generation. When i graduated from college, I had taken 1 computer class that required me to punch in a Fortran Program on cards and feed them to a huge computer I never saw. The number of jobs available in the computer field were limited to “computer scientists” It changed in what seemed like a heartbeat.

The class of ‘85 was having a blast with each successive release of a new computer, new software and applications their older brothers and sisters didnt have a clue about. If you knew how to use a spreadsheet, you could get a job. If you could write batch files in DOS, you could get a job. If you were advanced and could integrate Local Area Networks, grasp multitasking, program using relational databases, you could pick the job of your choice.

The PC revolutionized the job market for college graduates and more importantly, the business of business . Personal Computing introduced a new era of productivity and the USA was the leader in personal computer technology. We were back on top again.

It didnt stop at PCs . Software was developed for every application imaginable. PCs were connected into local and worldwide networks. Printers went from modified typewriters to laser. Communications went from modems to broadband. Online services expanded from the thousands to the millions and that was before the internet and America Online. We went from Moores Law to Metcalf’s Law.

This technology revolution was and has been amazing for two reasons.

First , is that the technology has continued to evolve this long. We may be at a point where we arent suprised to read about new technologies, but entrepreneurs continue to generate new ideas that lead to new products and services. Technology continues to have a significant impact on the US economy and to create jobs.

Second, is that the government managed to stay out of the way for as long as it did. Who knows why, but our elected officials managed to let the free markets stay free. Until now.

Things started to get a little shakey back in 1998.

In October of 1998 the Digital Millenium Copyright Act was passed. The DMCA was basically a law that set a very un-nerving precedent. That the government would do what it could to protect the interests of content owners at the expense of technological development.

The DMCA in and of itself didnt kill technological innovation. At the time it was passed it was more nuisance than anything else. Digital content wasnt all that prevelant and there certainly wasnt much money in it, so not many people cared that our tax dollars were being spent to make sure that your internet radio station never played more than 3 songs in a row from the same artist. Or that it became illegal to have a 24 hours a day Beatles (or any other artist) station.

In 1998 few people were buying DVDs. It was easy to buy a VHS tape and make a 2nd copy of it for your own use. The DMCA rarely touched home for many of us.

In 2005, its a whole different ballgame.

You know those DVDs you have that are scratched ? How nice it would have been to be able to make a copy of them first, knowing that the kids are going to get their hands on them and ruin them at some point ? You cant. Its illegal. Its illegal to make software that allows you to make backup copies. You paid a lot of money for your DVDs. The movie industry has made billions upon billions from DVDs. Many movies make more from DVDs than from theatrical release. They get your hard earned money, and they make it illegal for you to make a copy to keep just in case your DVD gets scratched. Thats wrong.

its the law of unintended consequences. Few people knew that DVDs would basically replace VHS in our homes. Few people had any idea that DVDs would get scratched and be useless with regularity. No one had any idea that trying to make a protective backup of that DVD would be illegal. It was perfectly legal to do it with VHS tapes.

The law of unintended consequences is never repealed. It goes on forever. Next month there is a case that will go before the Supreme Court of the United States. MGM vs Grokster. If this case goes the wrong way, that law of unintended consequence could put a hurt on us in the future.

The case is about whether Peer to Peer software that enables the P2P networks most of us read about and few of us use, should be illegal or not. The big entertainment companies are pushing the argument that because some of their content gets stolen through the use of this software, that all uses of the software should be illegal.

The are NOT arguing that there arent legitimate reasons to use the software . They acknowledge that businesses and individuals are using the software for purposes other than those that impact their music or movie businesses. They just feel that because it impacts their business (they still dont know if its a postiive or negative impact), in a way they cant control, its better to make it illegal rather than adapt to the new technology.

In reality this case isnt about whether music or movies are illegally downloaded using Peer to Peer sotware. This is purely about control. The entertainment industry wants control over technology that could have an impact on their business.

Technology has advanced and gone further than any of us could have imagined over the last 20 years. Go back just 15 years and even the best forecasters would be shocked at the number of us who have cell phones, use email, have DVD players, spend as much time online as we do watching TV, have MP3 players, replaced our film cameras with digital cameras and more.

The next 15 years will have just as many new devices that we cant imagine today.

What if they all became illegal ?

We are living in a world where information is becoming 100 pct digital. Of all the digital information across the world that is being created and exchanged, what percent is music and movies ? What percentage of that is owned by Hollywood and the big music companies ?

With all the home movies we are creating and saving on our computers. All the digital pictures of our families and friends. All the personal music created at home. All the corporate data and presentations. All the books, software, newsletters, newspapers,discussion forums, blogs, websites and emails that are created and saved digitally. How big a percentage could music and movies be ? 1/10 of 1 percent ? At most ?

Every single one of these items can benefit from the distribution efficiencies created by Peer to Peer networks. Every person and company in this country that wants to exchange digital data can benefit from peer to peer technologies. Just because the uses arent prevelant or obvious to some today, doesnt mean they wont be in 1, 2, 5 or more years from now.

In the MGM vs Grokster case, the fewer than 50 companies who control less than 1 pct of all digital information are trying to take control of innovation in the technology industry and pry it away from the rest of us.

Everything our imagination creates and touches that can be made digital is at risk if Grokster loses.

What innovations will be condemned by law before they have a chance to come to market because they could have an impact on Hollywood and the music industry ? We have no idea and that is a very scary prospect

Which brings me back to 1980.

The last 25 years have seen unimaginable increases in productivity, creativity, economic development and American pride because amazing people have been able to take amazing ideas and develop them without fear. That fearlessness ends if Grokster loses and the content industry is able is to take on the role of technology gatekeeper.

There will be a time , as there was in 1980, when we need a spark. When we hope that something new helps us escape from something old. Lets not let the content industry steal that opportunity out from underneath us.

One hundred percent of information this country creates from today going forward will be stored digitally. Peer to Peer software will create new ways for us to exchange that information. Do we want to give priority to movies and music over every other format of information in this country ?

I hope not

This is a call to action. Call your representative. Call your senator. Let them know that you respect the rights of the content industry, but that protecting innovation is more important.

Our future could depend on it.

One last line that I cant resist to use as it relates to the MGM vs Grokster case

Software doesnt steal content…. people do .

Indeed, Mark!

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