Yesterday I attended a daylong workshop at Harvard Law School about alternative compensation systems for digital media. It was a great meeting, with many interesting people saying interesting things. There was a high density of other bloggers, including Ernie Miller, John Palfrey, Derek Slater, Aaron Swartz, and Eugene Volokh, and I hope to read their reactions to the meeting. (Eugene has already posted a brief recap.)

The morning focused on mandatory license systems, such as those proposed by Fisher and Netanel. The conversation immediately turned to the core problem, which strategic behavior by users, intended to channel the system’s revenues to their friends. Examples include Eugene Volokh’s “Second Amendment Blues” scenario, in which the NRA releases a song and NRA members obsessively download and play it, and my scenario in which I play and play my brother’s off-key rendition of “Feelings”. The result is that tax money gets channeled to the NRA or my brother, rather than to real artists. Everybody agreed that this cannot be eliminated, but there are some things you can do to reduce the distortion it causes. (And don’t forget that the goal is only to be less inefficient than the current system.) Two issues remained largely unexplored. First, some have suggested that social norms will cause most people to avoid gaming the system, out of a feeling of obligation to artists. We don’t know how strong those norms will prove to be. Second, some people expressed concern that people will find other perverse ways to respond to the off-kilter incentives that a mandatory license creates. It seems to me that we can predict most of the first-order effects of a mandatory license, but we haven’t thought much about second- and third-order effects.

There was also some discussion about the “porn problem” – the fact that some of the media material consumed under the license will be pornographic, and there will be strong political opposition to any system that causes the government to send checks to porn publishers. (Excluding porn from the system raises other legal and practical problems.) One response is to propose a system in which each person gets to designate the destination of their own tax money. That helps the political problem somewhat, but I still think that some people would object to any system that treats porn as a legitimate kind of content.

At the end of the morning I was a bit less pessimistic than before about the advisability of adopting a mandatory license. But I’m still far from convinced that it’s the right course.

The afternoon discussion was about voluntary license schemes. And here an interesting thing happened. We talked for a while about how one might structure a system in which consumers can license a pool of copyrighted music contributed by artists, with the revenue being split up appropriately among the artists. Eventually it became clear that what we were really doing was setting up a record company! We were talking about how to recruit artists, what contract to sign with artists, which distribution channels to use, how to price the product, and what to do about P2P piracy of our works. Give us shiny suits, stubble, tiny earpiece phones, and obsequious personal assistants, and we could join the RIAA. This kind of voluntary scheme is not an alternative to the existing system, but just another entrant into it.

This is not to say that a few ISPs or universities can’t get together and cut a voluntary deal with the existing record companies (and other copyright owners). Such a deal would still be interesting, and it would lack some of the disadvantages of the more ambitious mandatory license schemes. Of all of the blanket license schemes, this would be both the least risky and the easiest to arrange. But it hasn’t happened yet. (Penn State’s deal with Napster doesn’t count, since it’s just a bulk purchase of subscriptions to a service, and not a blanket license that allows unrestricted use of music on the campus.)

All in all, it was a very instructive and fun meeting. Big thanks to the Harvard people for arranging it. And now, due to a big snowstorm, I get to spend an extra day or two in lovely Cambridge.

The RIAA has filed yet another round of lawsuits against individuals they accuse of illegally redistributing music on the Net. There is some evidence that the suits filed so far may be working – that they may be successfully deterring some people from redistributing music online. And if the suits are working, that’s good news.

The music business is in a real mess right now. Many consumers fail to comply with even the traditional core of copyright law. The evidence is now fairly convincing that this non-compliance is reducing revenue to the industry, and eventually to artists. The problem seems to be getting worse, as people get accustomed to non-compliance and as the spread of digital technology creates more opportunities to get music without paying.

There are basically three things that can happen next.

Voluntary Compliance:: Something happens to change public behavior, so that a large majority of people choose to pay for music, even though they have the technical capability to get it illegally for free.

Alternative Compensation: We give up on the current system and switch to something very different, such as a compulsory license scheme that supports artists via a tax on bandwidth or storage.

Permanent Non-compliance: Unable to achieve Voluntary Compliance, and unwilling to risk Alternative Compensation, we accept low compliance rates as a long-term fact. The music industry shrinks and less music is created.

(Note that I did not include an Infringement Becomes Impossible future, in which people want to infringe but are technologically prevented from doing so. That future just isn’t plausible.)

Voluntary Compliance is the best of these, if we can figure out how to achieve it at reasonable cost. Alternative Compensation is risky, since it (at least partially) decouples music creation from the market, and we can’t foresee its consequences clearly given our current state of knowledge. And Permanent Non-compliance is bad for everybody; it’s probably bad even for the infringers, who would have less music to not pay for.

If the RIAA’s lawsuits against individuals do deter infringement, that brings us marginally closer to Voluntary Compliance. And, to me at least, the very real costs and bad feelings that the suits have imposed so far seem a worthwhile price to pay, if they actually make Voluntary Compliance more likely.

Of course, the suits may ultimately fail to deter infringement, or they may not deter it enough to achieve Voluntary Compliance. Did I mention that I’ll be attending a workshop on alternative compensation tomorrow?