Today brings yet another story about how Hollywood’s finances are better than ever. Ross Johnson’s story (“Video Sales Abroad Are Good News in Hollywood. Shhh.“) in today’s New York Times tells us that the studios are keeping their overseas DVD sales secret, so as not to interfere with the industry’s tradition of lowballing its revenue.

“For a long time, the film business was a single-digit business on investment return,” said Charles Roven, the producer of “Batman Begins” from Warner Brothers, a division of Time Warner. “Now, because of home video, it’s a low double-digit business, and the studios want to make sure it doesn’t go back into the single-digit business.”

In the past, lowballing has enabled the industry to limit its payouts to stars whose contracts call for a share of the profits. As the story reports, that battle goes on.

These days, of course, surging profits would be inconvenient in another way. They would undercut the industry’s rent-seeking in Washington, which relies on a narrative in which technology destroys the industry’s revenue stream. If the technology problem is really as bad as the industry says, then it ought to show up in the sales numbers.

The music industry has opened its books, reporting sales and revenue numbers that fell for several years before rebounding slightly in 2004. By all reports, the movie industry is still more profitable than ever.

It may turn out that the net effect of technology on the industry is neutral, or even positive. If so, then no expansion of copyright law is needed, and a mild contraction may even be in order. Remember, the goal of copyright is not to maximize the profits of any one industry, but to foster creativity by regulating just enough to ensure an adequate incentive to create. If the industry wants to argue that incentives are inadequate now, or will be in the future, then it will have to show us the numbers.

The stars fight lowballing by demanding a detailed audit of industry revenue reports. We should demand no less.

Yesterday the MPAA announced the availability of a new software tool called Parent File Scan. I decided to download it and try it out. Here’s my review.

According to an MPAA site,

Parent File Scan software helps consumers check whether their computers have peer-to-peer software and potentially infringing copies of motion pictures and other copyrighted material. Removing such material can help consumers avoid problems frequently caused by peer-to-peer software. The information generated by the software is made available only to the program’s user, and is not shared with or reported to the MPAA or another body.

In practice, if there are music files on a computer, no software tool can tell whether they’re legal or illegal, because there is no way to tell whether the files came from ripping the consumer’s own CDs (which is legal) or from infringing P2P downloading (which is illegal). Saying the music files on consumer computers are “potentially infringing” will probably cause some people to delete files that are perfectly legal. The implication that removing music files from your computer “can help [you] avoid problems frequently caused by peer-to-peer software” seems misleading. Of course, it’s totally correct that removing P2P apps will eliminate any problems caused by P2P apps.

The Parent File Scan software itself comes from a company called DtecNet. You download and install the software, click through a standard-looking EULA, and you’re ready to go. When you tell it to scan, it searches your hard drive for files in common audio or video formats, and for P2P apps. On my machine, it seemed to find all of the audio files (all legal). It failed to find any video files, which I think is correct. The only P2P app on my machine was an old version of Napster (which was never used to infringe). Parent File Scan failed to find Napster, but it’s worth noting that the old Napster version in question is now utterly useless.

At the end of the scan, if you have any P2P apps, Parent File Scan offers to remove them. Based on the documentation, it appears that the removal is done by invoking the P2P app’s own removal program; the documentation warns that there might not be a removal program, and it might not remove everything that came with the P2P app (i.e., spyware).

Parent File Scan also lists the audio and video files it found. It discloses very clearly (annoyingly often, in fact) that it has no way of knowing whether the files are legal or illegal. Here’s a typical message:

The program does not distinguish between legal and illegal copies. It is up to the user to determine whether the files found by the program have been acquired legally, or if the material should be deleted.

In the post-scan display, each audio/video file has a checkbox which you can check to designate the file for deletion. The default is to delete nothing. I deleted a few old files that I didn’t want anymore, and everything seemed to work correctly.

All in all, the program seems to do its job well. The user interface is clear and straightforward, and does not try to scare or mislead the user. Not everybody will want this a program like this, but those who do will probably be happy with Parent File Scan.

UPDATED (11:15 PM): Added the word “infringing” before “P2P” in the “In practice …” paragraph, to eliminate the (false) implication that all P2P downloading is illegal.

This month’s Wired runs a high-decibel piece by Jeff Howe, on topsites and their denizens:

When Frank … posted the Half-Life 2 code to Anathema, he tapped an international network of people dedicated to propagating stolen files as widely and quickly as possible.

It’s all a big game and, to hear Frank and others talk about “the scene,” fantastic fun. Whoever transfers the most files to the most sites in the least amount of time wins. There are elaborate rules, with prizes in the offing and reputations at stake. Topsites like Anathema are at the apex. Once a file is posted to a topsite, it starts a rapid descent through wider and wider levels of an invisible network, multiplying exponentially along the way. At each step, more and more pirates pitch in to keep the avalanche tumbling downward. Finally, thousands, perhaps millions, of copies – all the progeny of that original file – spill into the public peer-to-peer networks: Kazaa, LimeWire, Morpheus. Without this duplication and distribution structure providing content, the P2P networks would run dry.

The story paints this as a sort of organized-crime scene, akin to a drug cartel, in which a great many people conspire, via some kind of command-and-control network, to achieve the widest distribution of the product. If true, this would be good news for law enforcers – if they chopped off the organization’s head, “the P2P networks would run dry.”

But this is wrong way to interpret the facts, at least as I understand them. The topsites are exclusive clubs whose members compete for status by getting earlier, better content. The main goal is not to seed the common man’s P2P net, but to build status and share files within a small group. Smebody on the fringe of the group can grab a file and redistribute it to less exclusive club, as a way of building status within that lesser club. Then somebody on the fringe of that club can redistribute it again; and so on. And so the file diffuses outward from its source, into larger and less exclusive clubs, until eventually everybody can get it. The file is distributed not because of a coordinated conspiracy, but because of the local actions of individuals seeking status. The whole process is organized; but it’s organized like a market, not like a firm.

[It goes without saying that all of this is illegal. Please don’t mistake my description of this behavior for an endorsement of it. It’s depressing that this kind of disclaimer is still necessary, but I have learned by experience that it is.]

What puts some people at the top of this pyramid, and others at the bottom? It’s not so much that the people at the bottom are incapable of injecting content into the system; it’s just that the people at the top get their hands on content earlier. Content trickles down to the P2P nets at the bottom of the pyramid, often arriving there before the content is available by other means to ordinary members of the public. Once a song or movie is widely available, there’s no real reason for an ordinary user to rip their own copy and inject it.

The upshot is that enforcement against the top of the pyramid would have some effect, but much less than the Wired article implies. The main effect would be to delay the arrival of content in the big P2P networks, at least for a while, by blocking early leaks of content from the studios and production facilities. The files would still show up – there are just too many sources – but the copyright owners would gain a short interval of exclusivity before the content showed up on P2P. Certainly the P2P networks would not “run dry.”

Don’t get me wrong. Law enforcers should go after the people at the top of the pyramid. At least they would be making examples of the right people. But we should recognize that the rivers of P2P will continue to overflow.

UPDATE (7:25 PM): Jeff Howe, author of the Wired article, offers a response in the comments.

The MPAA has announced lawsuits against the operators of P2P index servers, such as BitTorrent trackers, according to a Wired News story by Xeni Jardin.

A BitTorrent tracker keeps track of who is downloading and/or uploading a particular file, and makes this information available to others who want to find the file. The suits will presumably allege that the person running the tracker knew that the people downloading the file were infringing, and knew that the tracker was facilitating those illegal downloads, and yet the person ran the tracker anyway.

Previously, copyright owners had considered suing the operators of Kazaa supernodes, which also provide index information. As I wrote previously, suing supernode operators would have been a bad idea, because ordinary user machines silently volunteer to be supernodes, often without their owner’s knowledge. It’s one thing to sue somebody for setting up an index for a given file; it’s another thing entirely to sue somebody who didn’t even know that his machine was providing index information.

The good news is that we seem to be avoiding the worst-case scenario, which is a blanket lawsuit trying to shut down BitTorrent entirely. Such a suit would be unwarranted, as there is nothing about BitTorrent’s design that seems aimed to facilitate infringement. BitTorrent is designed to allow efficient distribution of large files. If that by itself were enough to get somebody sued, then things would be pretty bad.

Of course, it’s hard to see how one could sue BitTorrent. How do you sue a communications protocol? You can sue the person who designed the protocol, but the protocol itself can’t be undesigned. Nor can the technical community unlearn the lessons it has learned.