Skeptics of copyright are generally not too fond of “gatekeepers.”

Prior to the widescale adoption of the internet, these “gatekeepers”, the typical narrative goes, controlled what the masses read, watched, and listened to, reinforcing a dominant culture and creating the concept of media “consumers.” But the networked, one-to-one nature of the internet challenged this one-to-many model. It allowed creators to bypass “gatekeepers” and connect directly with fans, supporting more diverse and decentralized culture.

To many proponents of this view, current copyright law facilitates the former, broadcast model. Legal professor Guy Pessach thinks this is wrong.

In his forthcoming article, Deconstructing Disintermediation — A Skeptical Copyright Perspective, Pessach examines the effects that disintermediation has had in the copyright realm and comes to the conclusion that it has decreased cultural diversity, decentralization, and artist welfare.

Deconstructing Disintermediation

As Pessach notes, the conventional wisdom of disintermediation and copyright has been championed by many over the past decade, including academics like Jessica Litman, Neil Netanel, William Fisher, and Yochai Benkler. The basic premise is that copyright law has evolved to primarily benefit corporate media at the expense of users and individual creators. This system is criticized for undermining cultural diversity, making amateur and “civic-engaged activity” that involves the use of copyrighted cultural materials more difficult, and eroding the ability of creators to get a fair return for their work.

By focusing on cutting out the middleman, copyright law reformers hope to decrease corporate media’s influence on culture and make it easier for creators to reach audiences and for readers to enjoy a more diverse range of creative works. This would be achieved in part by enhancing existing provisions in copyright law like termination and work-for-hire rules to be more favorable to creators and in part by shielding some peer-to-peer activities from infringement liability and broadening safe harbors for online intermediaries.

Pessach is skeptical of this argument, and his article advances this skepticism on three grounds. First, the new intermediaries, like YouTube and Facebook, are not as different from traditional media as disintermediation proponents might think and may, in fact, be worse in many ways. As Pessach notes, “the creative destruction of traditional corporate media and its replacement by mega networked intermediaries may generate realms that are more concentrated, homogeneous and exploitive of creators.” Related to this is Pessach’s next argument that as new intermediaries gain power over audiences, the preservation of “traditional” media may have an increasingly important role mitigating that dominance. Finally, Pessach shows that incorporating disintermediation provisions in copyright law tends to have the opposite effect than intended, resulting more often in centralization of media, less cultural diversity, and less leverage for creators.

In short, argues Pessach, when you recognize that copyright law regulates power relationships between different actors in creative markets, you recognize that “extreme concentration of media power could derive not only from excessive copyright protection, but also from excessive ability to freely utilize content.” Pessach concludes,

Once this aspect is acknowledged, a novel and hidden role of copyright law is unveiled. Copyright law is a dynamic mechanism for regulating power relationships in media and information markets. It does so both by acknowledging copyright protection and by exempting from copyright liability. Hence, under certain economic and social conditions, copyright protection may have a legitimate role in mitigating media and market powers of copyrightless intermediaries that leverage copyright exemptions and limitations as their gateway to control over audience attention.

Money for Nothing

Pessach next turns to exploring these ideas in greater detail. First up: the nature of the new intermediaries. Pessach writes that

the bargaining position of originating authors and creators, versus a handful of Internet intermediaries, may be weaker than it was for traditional distributors and corporate media. The more concentrated the layer of effective networked distribution is, the weaker the bargaining position and economic welfare of authors and creators becomes. Seemingly, the Internet and networked communication platforms provide almost an unlimited range of distribution platforms. Nevertheless, if one adds the parameter of effective audience attention and the ability to effectively reach audiences, in realms of information overflow, reality appears different.

YouTube is used as a case study here. The sheer size and popularity of the site makes it a must for video creators to distribute their content online. But YouTube invests very little in producing the works available on its site1 and only pays about 5% in ad revenues to creators.

When compared to traditional creative industries, this state of affairs does not seem encouraging. For example, within the audio-visual creative industries, the guilds’ collective agreements between authors, directors and performers, on the one hand, and motion picture/television studios, on the other, seem to provide authors, creators and performers with financial conditions that are much better than the YouTube scenario, particularly because the financial investment and risk are born entirely by corporate media. As for the music industry, indeed, there are many reports and evidence regarding the imbalanced allocation of revenues between most artists and record companies. However, even in this regard, revenues from the “bad” old record company seem higher than the new digital distribution system. If one takes into account elements such as advances, coverage of production costs and even percentages of revenue share, the new boss might be worse than the old bad boss at the end of the day.2

Other examples of how the new intermediaries have not resulted in better conditions for authors and creators. Pessach cites to the purchase of the Huffington Post by AOL in 2011 by $300 million, value created by its thousands of unpaid bloggers who received no benefit from the sale as well as the Instagram flap earlier this year. Both cases demonstrate the enormous bargaining and negotiating power new intermediaries have over authors and creators.

Be Sure to Drink Your Ovaltine

In addition to reintermediation of expressive works, Pessach examines the monetization of these works online. Advertising has become the dominant method of monetization for online works, further exacerbating the negative effects to creators and culture. Pessach explains that an ad based model places emphasis on creating the most popular content in order to attract the most “eyeballs.” “Traditional” media has relied in part on advertising, of course, but disintermediation offers a more extreme version of this model. The former found the pressure to deliver eyeballs on the traditional intermediary. But the latter places that pressure on the creator himself. Pessach says the difference is that “as opposed to corporate media, individual creators and authors lack the financial resources required to spread risks between different types of cultural products or seek and develop other distribution platforms.”

Thus, Pessach concludes, disintermediation has not improved creators’ welfare, it has not increased cultural diversity, and it has amplified media concentration. One of the takeaways from this conclusion is that the internet has made “corporate” media more relevant, not less. Pessach notes the many essential roles that record labels, movie studios, book publishers, broadcasters and other traditional media have as social networks, search engines, and user-generated content platforms increase their dominance. First, their size puts them in a better negotiating position against digital distribution channels, getting, in many cases, a better “deal” for the creators of works in their portfolio than individual creators could likely get on their own. Second, these institutions carry “a cultural legacy of commitment to the creative industries”, which Pessach says is “currently absent in the commitments and cultural DNA of networked intermediaries.” Finally, the financial investment, risk allocating, and filtering functions of these companies help facilitate a broad range of cultural production that is highly unlikely to appear in a disintermediated digital environment.

Disintermediation and Copyright

So what does this all of this have to do with copyright?

To answer this question, Pessach next discusses two “themes” that have emerged from efforts to increase disintermediation through copyright law. The irony is that the actual effect appears to be contrary to the purported goals.

The first of these relates to the protection of online service providers through DMCA safe harbors, most notably the § 512(c) safe harbor for user-uploaded material. Part of the hope of this safe harbor was to support the development of new, decentralized distribution platforms. Reality tells a different story, which Pessach demonstrates by using the example of YouTube once again:

The dominant and unprecedented market and power position that YouTube has managed to obtain is… mostly due to § 512(c)’s safe harbor regime. It is the safe harbor regime that enabled the hosting and public provision of endless amounts of popular copyrighted cultural materials, and it is this ability that made the platform so dominant in terms of its market share. The growing popularity of the platform was largely based on its ability to cover entire portfolios of content (“full repertoire”) under one umbrella and highly demanded (copyrighted) content. The ability to do so without any need to obtain ex-ante authorizations from copyright owners and with the safe harbor’s limited legal risk is what facilitated the economic and cultural conditions for the current market domination of YouTube, particularly due to elements of network economics. Practically, the fact that under § 512(c)’s safe harbor regime, YouTube was obliged to remove (ex-post) infringing materials, based on a takedown notice by copyright owners, was not a real obstacle in establishing the platform’s dominance. By itself, such an obligation did not prevent the rapid growth in the platform’s popularity and the immense portfolio of popular copyrighted content that it hosted.

Once this dominant market position was achieved, however, it was also the stage to move toward business models, which are based on collaboration and revenue-sharing with creators and rights owners, only now from a completely different negotiation (or one may say, coercive) position. At this stage, authors, creators and rights owners were faced with a highly dominant and popular intermediary, which attracts a significant portion of audience attention and which is already partially shielded from legal liability for the hosting of their materials. Under such conditions, YouTube’s ability to launder its content activities under its own terms was considerable. Authors, creators and performers have very few options other than agreeing to YouTube’s terms and conditions or vanishing from audiences’ awareness.

The second theme Pessach looks at are proposals to vest more rights, particularly initial ownership rights, in creators. Though at times inelegantly phrased, the argument here is essentially that a focus on initial ownership rights takes the focus off the more important mechanisms that can provide meaningful bargaining power to decentralized and diffused creators. One self-published author is going to get whatever deal Amazon gives her, but a publisher that can negotiate on behalf of many authors could get a better deal.

The entire article is worth a read. Though astute observers may not find much surprising within, Pessach does an admirable job tying together various themes — “maybe the internet only wants one of everything”, the continuing importance of “traditional” intermediaries, the sharp decrease in creator welfare caused by disintermediation — and adds to a growing academic literature that highlights the flaws in the arguments of copyright’s skeptics.3 It is tragic that the erosion of creators’ rights has had the opposite effect than those responsible had intended. Disintermediation has benefitted few but a handful of giant internet firms. Hopefully, Pessach’s article shines a light on the fact that meaningful copyright protection remains just as vital to the public interest, if not more so, in the digital age.

Footnotes

  1. Pessach states that “YouTube does not finance or invest in the production of the content,” though in the past year, the site has begun at least advancing ad revenues for some original production. []
  2. Pessach cites here to David Lowery’s seminal article, Meet the New Boss, Worse than the Old Boss. []
  3. See, for example, Randolph May & Seth Cooper, The Constitutional Foundations of Intellectual Property, 8 Perspectives from FSF Scholars, Free State Foundation (May 10, 2013); Ronald Cass & Keith Hylton, Laws of Creation: Property Rights in the World of Ideas (Harvard Univ. Press 2012); Thomas Joo, Remix Without Romance, 44 Conn. L. Rev. 415 (2011); Marc H. Greenberg, Reason or Madness: A Defense of Copyright’s Growing Pains, 7 John Marshall Review of Intellectual Property Law 1 (2007); Justin Hughes, Copyright and Incomplete Historiographies – of Piracy, Propertization, and Thomas Jefferson, 79 Southern California Law Review 993 (2006); Stan Liebowitz, Economists’ Topsy-Turvy View of Piracy, 2 Review of Economic Research on Copyright Issues 5 (2005); Thomas Nachbar, Constructing Copyright’s Mythology, The Green Bag, Vol. 6 (2002). []

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