DISCLAIMER: The following text may contain sarcasm

Conventional wisdom says if you pour cold water into a hot bath, the temperature of the bath water will fall. New research, however, challenges this outdated view. That’s right: I was having a nice, hot bubble bath and decided to do a scientific experiment. So I opened the cold water tap and let it run into the tub. After ten minutes, I measured the temperature and again after fifteen minutes. To my surprise, the temperature was the same both times! It felt strange, because I was freezing, but you can’t argue with research. My experiment shows that pouring cold water into a hot tub does not decrease the water temperature. I thought about writing a 300-page report about it, but the government would only bury it.

You guessed it, I’m not really talking about bathing but the supposedly buried report that says piracy does not hurt legal sales. This idea is one of the pirates’ favourite daydreams. The recently leaked report adds to the daydreaming. I read the 307 pages so you wouldn’t have to. The mistake is on page 74. The claims go against established research, empirical evidence and common sense. The reason for the misleading conclusion is method problems (intentional or not, your guess is as good as mine).

Established research:

The available peer-reviewed research on the topic is as clear as academic research ever gets that piracy does hurt legal sales. Here is a good research overview. (Sidenote: When pirate-MEP Julia Reda says that the report is “consistent with other studies”, she means the wealth of studies that demonstrate that active pirates are also active legal consumers. From that, pirates like to draw the conclusion that pirate consumption is also a driver of legal demand. But the fact that the same music-lovers and film-buffs get content from both pirate and legal soruces, does not say anything about how one causes the other. Days with high ice-cream sales also have higher drowning incidents, but we don’t believe banning ice-cream would save anybody. Correspondence does not imply causality. Cum hoc ergo propter hoc is a fallacy so ancient, it has a name in Latin. End sidenote.)

The authors of the “buried” study seem to agree (page 83):

The academic debate whether file sharing reduces or increases legal demand for music is not settled. Although an increase appears to be counterintuitive, it might be achieved through so called ‘sampling’ or ‘exploring’, were consumers use downloading to sample a song from a particular album or artist before purchasing the music legally. Although various surveys found some evidence of sampling (3 out of 14), the net result of file sharing on music sales is considered negative in most papers (6 studies found a negative effect on purchases and only 1 discerned a positive effect). If the studies are restricted to peer-reviewed papers, only those with negative or insignificant estimated displacement rates remain.

Empirical evidence:

Global sales of recorded music were 27,8 Billion US-dollars in 1999. 17 years later, the figure was 16 Billion US$ or almost 50% less. 1999 was the year Napster started. Of course, there may be other reasons. Perhaps the interest for recorded music decreased significantly? Not very convincing…

Common sense:

If I have a pirate copy of a movie, record, game, book, map or whatever, I will only rarely get a legal copy too. It might happen occasionally, but it’s the exception and not the rule.

Method problems:

The main problem is that the study only looks at how sales changed from 2009 to 2013 (this is page 74 and following). This is like checking the temperature ten minutes after I start adding cold water to my bath! The large-scale impact of internet piracy of music started in 1999. Taking the first data-point ten years later is in the best case stupid (and in all other cases intentionally misleading). Since this study was uncovered, I suggest the Unit 0.1 at DG MARKT who commissioned the report send it back and tell the researchers to do it again with a correct data set.

This data fault is so severe, it is hard to say anything about the rest of the method problems, but let me add one thing anyway. I must admit that I don’t follow the long discussion on various countries’ anti-piracy measures. If the conclusion that piracy does not harm legal sales would have been accurate, the anti-piracy measures would have no impact at all. But, as that conclusion is wrong, those measures would serve to decrease illegal use and to some extent increase legal use, thus offsetting the decrease brought by the impact of piracy on legal sales.

All told, this report is a very complex way of arguing an impossible position. I get the impression that it was not subject to peer-review, so the academic quality cannot be confirmed. The fact that the report was not released does not necessarily mean that it delivers some kind of “inconvenient truth” that somebody wants to keep away from the public. It could also be that the report simply is lousy.

Finally:

The whole conversation about whether piracy hurts legal sales is actually pointless. Nothing stops a creator from giving away their work for free. That decision should be for the creator and not the pirate to make.

Don’t believe everything “buried” reports say. And don’t pour cold water into your bath.

EDIT: Updated more accurate sources and figures for music sales 

It was a surprise that President Juncker’s state of the European Union address last week barely touched on the digital issues. The speech talks about digitisation of industry as a side-note, a little bit on data protection, and fair taxes for the digital industry. But what happened to the Digital Single Market? This used to be the top priority of the Juncker presidency, broadcast as the key to growth and jobs in Europe. Also, tax is hardly the only area where the Commission has brought the hammer down on Big Tech, anti-trust is even bigger considering the repeated cases brought against Google.
There may be several reasons for this digital omission. First, the SOTEU speech is perhaps less of a shopping list of policy proposals and more of a political vision. Second, most of the digital single market policies are already out there, being processed by institutions and dissected by sceptics (like this writer). No need for president Juncker to spend time on that, maybe. And perhaps Juncker’s speech writer did not forget about digital after all, the roaming ban is mentioned with the other top objectives of the Commission: energy, security, capital and banking. That counts digital policy as business as usual, rather than new electronic frontiers for the European Commission.
What should a digital SOTEU contain? Netopia suggests that the President first pats himself and his colleagues on the back for bringing data protection and anti-trust law to bear on the new monopolists. EU Institutions are the only ones who realistically can push Big Tech in the right direction. The UN’s teeth are not sharp enough, the US is too close to its own digital superstars and anyone else big enough lacks the basic respect for freedom of speech, democracy and legal certainty (looking at you, China!). The EU is the new-sheriff-in-town to the Wild West of the Internet, bringing order and justice to a space ruled by gangs, goons and gunslingers who take what they want in the name of freedom. We know how that story goes.
Second, a digital SOTEU should bring nuance to the expectations of the digital single market. There is no single European demand, so there can be no single European supply. The digital single market should focus on pluralism and diversity, not more of the mono-cultures that dominate today’s internet. The mythic €416 Billion earnings are actually €17 Billion annual productivity increases. Rather than disrupting existing economies, the digital single market policies should focus on creating new ones. The consumers’ interest in offerings tailored to the local flavour and purchasing power needs to be respected, otherwise a backlash is inevitable. Many of the policy proposals have already proceeded far but it’s not too late to make it right.
Third and last, looking forward. A digital vision for Europe should see technology not as a force of nature, but man-made and guided by ideology. The way the Internet works today is a consequence of political decisions, law-making and government investment. Digital skills are great but creative skills are greater: make an innovation plan focused on digital creativity and use the cultural diversity as a strength. Don’t sell out European content to the platform companies, instead make an ambitious investment plan so European champions can compete (Silicon Valley built its fortunes on federal loan guarantees, 4 public dollars to one private!). And while tax- and antitrust case may help, it is after-the-fact-regulation. Most technology innovation comes from public research funding, here is an opportunity to build in that research also considers societal impact, such as artificial intelligence. Lastly, Europe’s digital opportunity is in the content rather than the infrastructure. The importance of intellectual property is greater than ever.
That is the recipe for digital success for Europe. Let’s hope it makes it into the next State of the European Union-address.

This is Netopia’s newsletter September 21

It’s a trick question. The internet is already regulated, except poorly and by coders rather than lawyers. Author Douglas Rushkoff makes this point in a long read by Charles Arthur in The Guardian. This is exactly the point that inspired Netopia. I first started this project in Sweden more than seven years ago. Back then I wrote an opinion in Dagens Nyheter – the #1 morning paper in Sweden – which said that it’s not the presence of government online that is the threat to fundamental rights online, but the absence. To keep up the name-dropping: I owe this insight to law professor Larry Lessig (though he would disagree with some of my conclusions) who says Code is Law. In my interpretation, that means that there is always regulation online except not by democratic process but by code developed by private companies. In order to have rule of law and democracy online, therefore the government institutions that protect our rights in the offline world must also do so online and the only way is to demand responsibility of those making the code.

This was a controversial point back then. The general attitude was that any government presence online would be the first step on an inevitable slide down the slippery slope to a Chinese state of oppression. The internet is a precious and special thing that must be left alone, was the idea. But since then, we’ve seen our privacy been sold out to advertisers, monopolies growing more powerful, cyberattacks on businesses and even democratic elections, fake news manufactured by for profit “farmers”, illegal surveillance by the security services, terrorist propaganda including beheading videos and then some. It is clear to most now that the thought of the-internet-as-a-place-where-good-people-do-good-things-and-the-government­-can-only-destroy-the-magic was naïve at best. A nostalgic dream of a place and time that never really was. A beautiful vision that reality got in the way of.

Reading the survey at the tail of Arthur’s Guardian-piece, the change is clear. All respondents agree that regulation is necessary online. Nobody talks about China. Probably not because they read Netopia, but at least Netopia was an early adopter of this new way of thinking of the internet. Now, if there is support for the idea that regulation helps online, just as offline, the next question is execution. How can we make this happen? This is what the question-mark in the Netopia-logo symbolizes. How can we make this happen? Discuss with your neighbor.

The European Union is probably the only level of government that has institutions powerful enough to have a real capacity to enforce rule of law online. The US is likely more interested in protecting the business interests of Silicon Valley and the UN does not have the necessary tools (such as a court). For those who believe that the democratic process is the best way to make rules for the online society, the hope is with the EU.

Can the European Union deliver on such an expectation? The jury is still out. On the one hand, the Digital Single Market is in many ways a gift to the internet giants. Rather than help European challengers, it will make today’s dominant players stronger. On the other hand, the European Commission has brought a string of anti-trust cases against some of the biggest internet players. Yesterday’s announcement of a €2,42 Billion fine against Google (for abuse of dominant position in its Google Shopping service) is one in a series of anti-trust cases brought by Commissioner Margrethe Vestager.

Can anti-trust save competition online? The network effects mean the internet gravitates toward niche monopolies. The logic of business makes these niche monopolies branch out to neighbouring fields. The legal system with its immunity of liability for internet intermediaries (“safe harbour”) reinforces the dominance. The would-be challengers in the startup world are set on exiting to the big guys, rather than replacing them. The ideology that says the internet must be left untouched by regulation is strong and wide-spread. Can anti-trust beat all of that? Obviously not, it helps but it’s not the single answer.

So is there no hope for fair competition and rule of law online? Sure there is! While competition may be out, the opinions of share-holders, staff and users can take down a superstar, as Travis Kalanick’s recent departure as CEO of Uber shows. Silicon Valley can do it to itself. There is also room for forward thinking EU-policy. Besides the competition cases, the Commission should look into safe harbour and its consequences for privacy, fake news, competition and more. European investment policy can support challenging today’s business logics. And its research policy around hot new technologies like 5G, internet of things, additive manufacturing and blockchain can consider rule of law and competition from the outset. That and re-thinking the Digital Single Market. There is plenty to do for bold and visionary European policy-makers to follow the path set by Vestager.

This is Netopia’s newsletter June 28 2017

A long time ago, in my hometown Stockholm, there was a court case, widely reported, against the founders of The Pirate Bay. This was 2009. I was there to listen to parts of the trial. The world could follow it via the defendants smarting off on Twitter. It was a different time in many ways, my website was hacked because I took a stand against the pirates (I’ll save that story for a different time). Many appeals later, the defendants served jailtime. One of the claims the defense made was that The Pirate Bay only served as a search engine for torrents (a “torrent tracker”) and if that was illegal, other search engines must also be illegal by consequence, as they can be used to find torrents. While this did not prevent the Swedish courts to deliver the jail sentence, other courts have struggled with this legal argument.

On Wednesday, the Court of Justice of the European Union gave its decision in the case of Stichting Brein v Ziggo and XS4ALL – the Dutch rights holders organization versus two Dutch internet service providers. The Dutch Supreme Court had referred the case to the CJEU to find out if The Pirate Bay can be blocked by ISPs even if it is “only a search engine”. The CJEU said it can be blocked.

This makes perfect sense of course. It is hard to buy this argument that The Pirate Bay does not know about the files users upload: it makes money of the adverts, it actively moderates the results for faulty links (but not infringing links), it encourages users to upload protected works, it even runs charts of the most popular downloads. All that, plus the name The Pirate Bay should give you a clue what they’re up to.

It’s hard to be a rebel against copyright and talk about how corporate interests try to keep a dying model alive on the one hand, and pretend not to have anything to do with piracy on the other.

Does this mean other search engines may be in trouble? Maybe, but if they stay clear of actively promoting infringing content and work together with rights-holders to demote pirate search results, at least they have a stronger claim to be “just a search engine”.

In the conversation around the Digital Single Market, the consumer interest is a big part of the motivation. The European Commission wants consumers to be able to access their online content services when travelling to a different member state. It also wants consumers to be able to access content from other member states, because if they can’t, how can it be a Digital Single Market?

In the balance is the freedom of contract for those who make the content: why should they not be able to decide how the content is delivered? Why should the policy-maker decide how the consumer offer is designed? For many types of content, selling licenses territory by territory is an important method to get the most value from the market.

So, is this a classic standoff between the consumer and the business interest? Let’s take a closer look. While consumers may have an interest in theory to take their subscriptions with them on the road, the actual appetite is small. Fewer than 4% of internet users try to access content online while in another member state, according to the European Commission’s own research.

On the other hand, consumers like to have content in their local language, 62% of Europeans only watch films or series that have either audio or subtitles in their own language (same source). Translation is possible with territorial licensing. It is fair to expect that consumers also like a price in their local currency not to mention a price point tailored to the local purchasing power, which can vary greatly across Europe: the purchasing power of the consumer in Sweden is more than twice that of the Southern neighbour consumers in Poland, meaning that a subscription that costs €10 per month is more than twice as expensive to those paying with zloty rather than kronor. Consumers also like things like a helpline operator speaking their own language and context tailored to the local preference. All these things are made possible by territorial licensing and would be in jeopardy without it. Territorial licensing is a consumer interest.

Without territorial licensing, the consequence is the same offer to all consumers across Europe: same price, same content, same context. That would be a digital single market that does not take into account the diversity of the European consumers.

Portability of content services may have found its solution with the adoption by the European Parliament of a regulation on May 18. But many other policy decisions remain, not least regarding the Geo-blocking regulation. European policy-makers, when you make these decisions please keep the consumers interest in mind and allow territorial licensing as an opportunity so consumers can get the content the way they want it.

This is Netopia’s newsletter June 6th 2017