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                                Digitization and its Discontents                 231

DIGITIZATION AND ITS DISCONTENTS: HOW MARKETS ARE
             TRANSFORMING COPYRIGHT


                                    by MICHAEL A. EINHORN*


1.    INTRODUCTION
     In 2004, I wrote an article for this journal entitled “Digitization and
its Discontents: Digital Rights Management, Access Protection, and Free
Markets,” in which I argued that free market forces would resolve many of
the difficulties that opponents of the DMCA had identified in written and
oral comments regarding the act. I shall now revisit the topic some two
years later from a somewhat different vantage point. The issue now before
us is the ongoing evolution of the Internet to an interconnected platform
for social relationships, advertising, and distributed computing. This will
have profound implications for content owners, consumers, and copyright
law.
     From a litigation standpoint, the past two years may appear to have
been quite successful for content owners. The Supreme Court handed
down its Grokster decision in 2005, reversing an earlier judgment in 2004
from the Ninth Circuit that upheld the file-sharing services of Grokster,
KaZaa and Morpheus. Since that decision, the content industries have
settled litigation with iMesh, Grokster, Sharman (distributor of KaZaa),
and MetaMachine (distributor of eDonkey); litigaton continues against
Streamcast (distributor of Morpheus).
     Yet acts of file-sharing have shown no signs of abating since the Su-
preme Court decision. As reported by Big Champagne, the number of si-
multaneous worldwide users grew from 8.6 million to 9.7 million in
2005–06, while the U.S. population grew from 6.2 million to 6.7 million.1
While digital services now provide 11% of music label revenues, the num-
ber of music files redistributed via P2P in 2005–06 now exceeds iTunes
downloads by a factor of five hundred.2 In addition to pre-existing
software that cannot be controlled, infringing works have also appeared
on open source networks, darknets, and social networks that have grown
tremendously in popularity in the past two years.

*Senior Advisor, CONSOR Intellectual Asset Management, http://www.consor.
com. Ph.: (973) 618-1212; email: mae@mediatechcopy.com.
  1 Thomas Mennecke, P2P Population Continues Climb, SLYCK, June 14, 2006,
        http://www.slyck.com/news.php?story=1220; Alex Veiga, P2P Still Thrives
        After Ruling, ABCNEWS.COM, June 20, 2006, http://abcnews.go.com/Tech-
        nology/wireStory?id=2139833.
  2 Id.
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232                      Journal, Copyright Society of the U.S.A.

     In the same mixed arena, content owners themselves have considered,
and sometimes deployed, the same technologies that once were anathema
to them. By enabling owners of high-bandwidth content to deploy idle
storage capacity on interconnected network computers, the “data swarm-
ing” technologies of some P2P systems (such as BitTorrent) can save be-
tween 70 and 90% of related transport costs. Indeed, Fritz Attaway of the
Motion Picture Association of America — certainly not a copyright mini-
malist — would come in July 2006 to term the joining of Hollywood and
peer-to-peer networking as a “marriage made in heaven.”3 His colleague
Dean Garfield aptly made the point: “the challenge with p2p is not the
technology, but the business model of those who have chosen to use the
concepts . . . for their own illicit purposes.”4
     The conflict will continue for some time as the new technology
evolves. The paradigm for resolution will involve a cycle of litigation, set-
tlement, and market advance, and implicate in the process new business
models and market institutions that will test and adjust over time. This
article describes the most important considerations in the present arena.

II. THE RETURN OF ONLINE ADVERTISING

      The recent history of two bellwether digital companies — Google and
America Online — should tell us about a new phenomenon in the market
— the return of online advertising, which will profoundly influence the
way content is monetized over the next decade.
      Google is a leading search engine that now derives some 98% of its
annual revenues from the sale of advertising to online sponsors. Since its
initial public offering in 2004, the company has seen a nearly fivefold in-
crease in its equity price, and a sextupling of net earnings per share.5
There is one key reason: Google’s advertising revenues have more than
quadrupled during this time, and more growth is expected. The company

  3   Confusion from ‘Grokster,’ Other Suits Slows Legitimate P2P Deals, Players
        Say, WARREN’S WASH. INTERNET DAILY, June 23, 2006, http://www.diariaa.
        com/article-warrens-legal-confusion.htm.
  4   Letter from Dean Garfield, Vice-President and Director of Legal Affairs,
        World Wide Anti-Piracy, Motion Picture Association of America, Inc. to
        Deborah Platt Majoras et al., FTC Commissioners (Nov. 18, 2004) (Public
        Comments, Peer-To-Peer File-Sharing Technology: Consumer Protection
        and Competition Issues: Announcement of Public Workshop and Request
        for Public Comment and Participation, FTC File No. P03 4577), available at
        http://www.ftc.gov/os/comments/p2pfileshare/OL-100030.pdf.
  5   Google, Form 10-K Annual Report, Consolidated Statements of Income (Mar.
        16, 2006), available at http://www.sec.gov/Archives/edgar/data/1288776/000
        119312506056598/0001193125-06-056598-index.htm.
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                                Digitization and its Discontents                    233

is now worth more than Disney, News Corporation, and Viacom
combined.6
     While Google capitalized on advertising, AOL — once the bellwether
company of the Internet — rethought in 2006 its entire subscription
model. Although the company earned in fiscal 2005 a total of $7 billion in
subscription revenues, and $1 billion in online advertising, the company
experienced in 2006 a fall in the former and increase in the latter.7 As a
consequence, AOL in September 2006 made its search engine and accom-
panying software freely available to all broadband users.8 The company
expects that the lost subscription fees will be compensated by the gain in
advertising dollars that will expectedly arise from its reach to a larger
viewing audience.
     The new trends in online advertising will continue indefinitely as the
demand for broadband increases and the Internet increasingly delivers
rich content and advertising to a wider base of users worldwide. Though
Internet advertising now accounts for less than 10% of total U.S. advertis-
ing, total advertising revenue on the Net in the first quarter of 2006 ex-
ceeded the corresponding level in Q1 2005 by 38%.9 Moreover, a recent
survey found that advertising on search engines would increase in 2006 by
an expected 26%, while total online, print, and TV/radio would notch cor-
responding levels of 19%, 3.3%, and 2.4%.10 For its part, Forrester Re-
search forecasts that total online spending will increase from $15 billion in
2005 to $26 billion in 2010.11
     Indeed, the Internet is now the second most popular medium in every
daypart (behind television) according to the Center for Media Design at
Ball State University, which tracked the media usage of 350 people at fif-
teen-second intervals.12 By combining capacities for tracking, targeting,
interactivity, transaction, distribution, and affiliate marketing, the Internet

  6   Id.
  7   Subscriptions in fiscal 2006 had fallen some 15%, down 3.1 million from 20.8 in
          June, 2005. At the same time, ad revenues increased $333 million in 2005,
          while subscription revenues declined $722 million. In the first half of 2006,
          ad revenues were up $210 million, while subscription revenues declined
          $383 million.
  8   Electronic mail, security software, instant messaging, social networking, and
          parental controls.
  9   Id.
 10   Online Adopted by 80 Percent of Advertisers, CENTER FOR MEDIA RESEARCH
          RESEARCH BRIEF, Oct. 26, 2006, http://www.centerformediaresearch.com/
          cfmr_brief.cfm?fnl=060308.
 11   Forrester Research Releases U.S. Online Advertising and Market Forecast –
          Market to Reach $26 Billion by 2010, YAHOO! FINANCE, May 3, 2000, http://
          biz.yahoo.com/bw/050503.
 12   Diego Vasquez, How the Web Now Dominates Our Lives, MEDIA LIFE, June 6,
          2006, http://www.medialife.com.
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234                      Journal, Copyright Society of the U.S.A.

provides a powerful integrated mechanism for advertising and retailing.
With more build-out of broadband, these same capabilities will develop
beyond the texts and graphics of banner ads and pop-ups to include fea-
ture-rich advertising that would include spoken words, music, fixed art-
work and photographs, and moving visual images. Here, file-sharing and
the growing affiliation of user interests can accommodate information ex-
change among user communities based on actual personal tastes and inter-
ests rather than imagined demographic correspondences that constitute
the basis of present marketing strategies.
     Compared with the traditional channels of broadcast media, online
advertising can generally be targeted more exactly to a customer’s re-
vealed tastes, as revealed in his/her present and previous online behavior.
Indeed, the Online Publishers Association (OPA) found in 2006 that 31%
of respondents to an online ad eventually came to visit the advertiser’s
Web site, and 8% actually made purchases.13 Nor does advertising appear
to be intrusive upon the average viewer; some 71% of consumers prefer
free video content to pay-per-use view at $1.99 and are then willing to put
up with advertising to accommodate their preferences.14
     The connection between advertising and music is considerable, as Ya-
hoo came to understand. With 25 million monthly visitors,15 Yahoo!Music
now includes a network of over 200 online radio stations that serve
nineteen different genres of music,16 Musicmatch (a provider of music
management software and a-la-carte song downloads), and a competitive
monthly subscription service that provides unlimited streaming access to
more than 1.5 million songs.17 Most of this is monetized by the sale of
advertising, although Yahoo also earns money from its service.
     More generally, music-based advertising has the potential to benefit
record labels and artists greatly. At present, total advertising dollars on
broadcast radio in the U.S. exceed $20 billion,18 none of which is diverted
to rights owners in the sound recordings that are performed. Before de-
ducting for costs, retail revenues earned from the sale of physical units
among RIAA companies (which may account for 75–80% of the industry

 13   Sponsored Video for Three-Fourths of Users, excerpted from CENTER FOR ME-
          DIA RES. REP., DCINFO WKLY. NEWSL., Sept. 25, 2006, http://dcia.info/
          News/newsletter_2006-09-25.htm.
 14   Id.
 15   Saul Hansell, It’s Not for TV, It’s Yahoo: An Ex-ABC Impresario Aims to
          Build the Studio of the Future, N.Y. TIMES, Sept. 24, 2005, at C1.
 16   Launchcast, http://launch.yahoo.com/launchcast/stations (last visited Mar. 30,
          2006).
 17   Insight, Yahoo Music Engine Really Rather Good, May 19, 2005.
 18   See VSS News, http://www.vss.com/articles/articles_2006/article_091206.htm
          (last visited Nov. 7, 2006).
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                                Digitization and its Discontents                 235

total) earned revenues of $10.5 billion in the full year of 2005.19 Assuming
a very generous profit rate of 5%,20 these same labels then earned about
$500 million in profits in the same year, or 2.5% of the radio advertising
total. Consequently, if 2.5% of radio advertising could be diverted to the
labels (presumably through the shift of listeners to advertising-based ser-
vices), label profits could double.
     Moreover, a new report from In-Stat indicates that the potential
worldwide market for online video content will grow from 13 million
households in 2005 to 131 million households in 2010.21 The key driver
behind this growth is the widespread adoption of broadband; In-stat
predicts that by 2010 there will be 413 million broadband households
worldwide, up from 194 million in 2005.22

III. SOCIAL NETWORKING
     An emerging theme in information networking is the evolution of on-
line communities — such as MySpace, YouTube, Perenety, LiveJournal,
Friendster, and Facebook — that will allow people with common profes-
sional interests additional opportunity to share information, to collaborate
on communal works, and to generate a collective memory of archived
information.
     As the signal event in the past eighteen months, News Corporation
acquired Intermix Media, which owns the popular Web site, MyS-
pace.com. As the world’s largest social network, MySpace daily attracts
over 250,000 new users and now counts over 100 million subscribers.23
MySpace users engage one another by exchanging blogs, instant messages,
music downloads, photos, classifieds, events, groups, chatrooms, user fo-
rums, and other items of personal interest. MySpace is now the fifth most
popular Web domain (behind Google, Yahoo, MSN, and AOL) in total
number of individual page views and now serves 8% of all ads on the
Internet.24
     MySpace does not charge for use or subscription to its online service.
Rather, MySpace monetizes costs through advertising and e-commerce.

 19   RIAA 2005 Year-End Statistics, available at http://www.riaa.com/news/news-
          letter/pdf/2005yrEndStats.pdf.
 20   The assumed amount is indeed generous. For independent estimates of re-
          lated costs and royalties, see WILLIAM W. FISHER III, PROMISES TO KEEP
          261-64 (2004).
 21   Kenradio, http://www.kenradio.com/index.php?option=com_content&task=
          view&id=276&Itemid=1 (last visited Oct. 20, 2006).
 22   Id.
 23   Yinka Adegoke, MySpace to Sell Music from Nearly 3 Million Bands, YAHOO!
          NEWS, Sept. 3, 2006, http://news.yahoo.com/s/nm/20060903/tc_nm/media_
          myspace_songs_dc.
 24   Id.
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236                      Journal, Copyright Society of the U.S.A.

Most prominently, users may exchange electronic greeting cards and news-
letters that make advertising space available to commercial sponsors who
refer people to their Web sites. Intermix itself also markets products to all
MySpace members through its own marketing company, Alena.
     The market now expects a considerable advertising yield from MyS-
pace. Google agreed to pay News Corp. some $900 million over the next
three years to be the exclusive provider of text advertising for the site.25
The investment can prove worthy if MySpace can establish a “virtuous
cycle” between larger audience bases and content sources — attractive
considerations for an advertising platform.
     As a key facilitating strategy, MySpace entered into an important mu-
sic connection in September 2006. The company then announced that it
would soon allow over three million bands to use its platform to sell music
directly to network members.26 Depending on whether it can broker a
deal with major labels, News Corp., a multinational corporation that owns
no record labels or radio stations, may now emerge as a strong challenger
to traditional radio platforms, which have in the past six years lost listen-
ing audiences in the U.S. in all age groups, with the worst percentage drop
among teenagers (12–17) and young adults (18–24) who are generally
more enthusiastic about new music.27
     The other major move in social networking came from peer-to-peer
networks that accommodate online file-sharing of user videos. Market
leader YouTube was launched in February 2005 with an initial investment
of $12.5 million; the same company was bought out by Google in October
2006 for $1.65 billion.28 Users of YouTube technology may upload home-
made personal videos to the network using any format or software; the site
automatically converts uploaded files into Flash movies. Once a video is
loaded, any user on the network may come to view it. Over 30 million
unique visitors now watch more than 100 million videos per day on You-
Tube, which adds 60,000 new videos daily.29

 25   Greg Sandoval, Sony Gets Into Video Sharing With Grouper Hug, CNET
        NEWS.COM, Aug. 22, 2006, http://news.com.com/Sony+getsnto˘deosharing+
                                                                   ¸ ı
                        ˇ
        with+Grouperug/2100-1026_3-6108508.html.
 26   Adegoke, supra note 23; Jeremy Kirk, MySpace Enters Crowded Music
        Download Market, PLAYLIST, http://playlistmag.com/news/2006/09/04/mys-
        pace/index.php (last visited Oct. 26, 2006).
 27   Arbitron, Persons Using Radio Report, http://wargod.arbitron.com/scripts/
        ndb/ndbradio2.asp (cited elsewhere) (last visited Mar. 30, 2006).
 28   Andrew Ross Sorkin & Jeff Leeds, Music Companies Grab a Share of the You-
        Tube Sale, N.Y. TIMES, Oct. 19, 2006, at C1.
 29   John C. Dvorak, Missing the Point About YouTube Commentary: Pent Up De-
        mand and Ease of Use Add Up to Explosive Growth, MARKETWATCH, Aug.
        10, 2005, http://www.marketwatch.com/News/Story/kx41F17ZJwXRG8Lm0
        R8nK9.
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                                Digitization and its Discontents                    237

      While complaining of ongoing copyright infringement on YouTube,
three major record companies — Sony BMG, Warner Music Group, and
Universal Music Group — negotiated for shares in the company hours
before the recent Google buyout.30 This would apparently free Google
from any portending infringement lawsuits by these same labels. The con-
trast with Napster is noteworthy; comparable talks in 2001 between the
record industry and Napster broke down,31 with a later lawsuit filed on
BMG and Hummer Winblad for taking a share in the network.32
      Owners or not, major content providers will increasingly come to post
material to reach the wider viewer base of YouTube, and advertisers will
follow the entrance. YouTube now accommodates the insertion of rich me-
dia banner ads from, inter alia, AOL’s Advertising.com and Tacoda.33 In
July 2006, YouTube and NBC announced a strategic partnership to pro-
mote NBC’s fall television lineup.34 In the same month, Disney Online
contracted to run rich media banner ads on every view page to promote
Pirates of the Caribbean: Dead Man’s Chest.35 Besides NBC, YouTube an-
nounced a second major deal for integrated distribution with Warner Mu-
sic.36 Finally, YouTube developed the capacity to offer branded channels
that will allow content owners and advertisers to promote materials
through customized presentations on proprietary platforms.37
      New business models on other competitive social networks can now
be expected to emerge in order to attract eyeballs, content, and advertis-
ing dollars. For example, video network Lulu.tv will collect from users

 30   Id. For example, Doug Morris, head of Universal Music, called both YouTube
          and MySpace “copyright infringers” and said that the sites “owe us tens of
          millions of dollars.” Universal has already sued two smaller video-sharing
          sites, Bolt and Grouper.
 31   Id.
 32   Sandeep Junnarkar, Lawsuit Targets Bertelsmann over Napster, CNET NEWS.
          COM, Feb. 20, 2003, http://news.com.com/Lawsuittargets+Bertelsmann+
          over+Napster/2100-1023_3-985285.html?tag=NL.
 33   Erik Sass, YouTube Partners with Ad Networks, ONLINE MEDIA DAILY, Aug.
          10, 2006, http://publications.mediapost.com/index.cfm?fuseaction=articles.
          san&s=46629&Nid=22401&p=204029.
 34   Jennifer LeClaire, NBC Partners with YouTube in Content Deal, TECH
          WORLD, June 28, 2006, http://www.technewsworld.com/story/hTLX1a0Zhgp
          Dv6/NBC-Partners-With-YouTube-in-Content-Deal.xhtml.
 35   Erik Sass, ‘Pirates’ Seizes YouTube, ONLINE MEDIA DAILY, July 7, 2006, http://
          publications.mediapost.com/index.cfm?fuseaction=articles.san&s=45305
          &Nid=21543&p=204029.
 36   Coming Attraction: YouTube’s Business Model, KNOWLEDGE@WHARTON, Oct.
          4, 2006, http://knowledge.wharton.upenn.edu/article.cfm?articleid=1568&
          CFID=2377525&CFTOKEN=35567264.
 37   Rhys Blakely, YouTube Offers ‘Branded Channels’ Alongside the Home-Made
          Videos, TIMES ONLINE, Aug. 23, 2006, http://business.timesonline.co.uk/arti-
          cle/0,,13129-2324870,00.html.
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238                      Journal, Copyright Society of the U.S.A.

monthly account fees in order to pay creators for posting popular videos to
its Web site. By contrast, Revver.com will share 50% of its advertising
revenue with those who post popular videos there.38 On the horizon,
Microsoft is developing its own service and the founders of the Skype and
KaZaa services promised to unleash the competitive Venice Project.39
With so aggressive a competition, Google will need to take every step to
maintain its present incumbent advantage.

IV.     RECOMMENDATION TECHNOLOGY
     As a new capability of digital technology, networks can augment di-
rect fan communication with various types of recommendation technology
that filters information to assist more specialized presentations. Recom-
mendation is now deployed through a number of different hierarchies.
     Music researchers at Upto11 use proprietary mathematical algorithms
to identify common listening tastes found in over 250,000 music folders
found in various file-sharing networks;40 subscribers may receive recom-
mendations of other tracks based on the particular music they download.
At competitor Gracenote, recommendations to users are based on a corre-
spondence between a chosen song or artist and the results of a classifica-
tion grid conceived by musicologists that identified 1,600 music genres
related to style, region, era, artist type, etc. The advanced search engine
Discover generates recommendations based on three different types of in-
tegrated analysis: music expert editorial, community-based preferences,
and shared audio attributes derived from digital signal processing.41
     Recommendation technology can rely also upon more “bottoms-up”
information from audiences or bands, which can be generated without any
hierarchical layering by third-party intermediaries. Popular with alterna-
tive newsweeklies that advertise local entertainment events, Cornerband
provides to users with particular listening interests the names of local
bands corresponding to certain key words; e.g., a user who enters “Celine
Dion” and “Chicago” will learn of Web sites, downloadable content, and
possible appearances of any similar performer who may be performing in
the city’s metropolitan area.42 After protecting works with digital rights

 38   Peter Wayner, Site Tempts Video Makers by Offering to Pay Them, N.Y. TIMES,
        July 3, 2006, at C3.
 39   YouTube: Waiting For the Payoff, BUS. WK. ONLINE, Sept. 18, 2006, http://
        www.businessweek.com/magazine/content/06_38/b4001074.htm?chan=top
        news_top+news+index_echnology.
 40   Upto11.net, http://www.upto11.net (last visited Oct. 6, 2005).
 41   Gracenote, Gracenote Introduces Discover, Industry’s First Global Multi-
        Method Music Recommendation Engine (Jan. 5, 2006), http://www.grace-
        note.com/corporate/press/article.html/date=2006010501.
 42   Cornerband.com, http://www.cornerband.com/html/about/about.asp (last vis-
        ited Oct. 5, 2005).
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                                Digitization and its Discontents                 239

management, Intent Media and the Jun Group directly seed ad-supported
material in file-sharing networks and ensure that their files appear in stra-
tegic positions on the Internet.43
     As a third option, fans may actually be compensated for promoting
works through emails, blogs, and Web sites, inter alia. A super-distributor
platform for independent labels, Weedshare pays up to 35% of sales reve-
nues to listeners who recommend songs which listeners later come to
buy.44 Following a different model, each user on the Wurld Media net-
work collects 10% for recommending a sale, and up to 5% for owning a
track that is later distributed and purchased.45
     Finally, the music services themselves now allow fans to compose and
email playlists that can be amended with free samples. New promotion
models of this nature appeared in the past year at music services such as
iTunes and Napster. For example, Napster allows all users to listen to any
of two million songs in its catalog up to five times for free. This advertis-
ing-based improvisation complements the message boards and news
materials that elsewhere populate the sites, and is aimed to attract poten-
tial subscribers to the unlimited streaming and download services that
Napster also provides.46

V.     WINDOWING

     As a related phenomenon to social networking and advertising, the
Internet will accommodate the sequential release of content and related
material. This is commonly known as windowing. Content owners can
generally use windowing to extend the shelf life of movies, programs, and
other video releases through several vintages. In addition to widening the
tenure of overall audience exposure, windowing allows content owners to
price discriminate on consumer tastes depending on the felt urgency of
viewing a particular work. Windowing is particularly appropriate for con-
tent industries, where sunk production costs must necessarily be recovered
through imaginative marketing of the final product over a sequence of
asynchronous platforms.

 43   Sue Zeidler, Entertainment Firms Quietly Using Piracy Networks, BOSTON.
        COM, Nov. 3, 2003, http://www.boston.com/business/technology/articles/2003
        /11/03/entertainment_firms_quietly_using_piracy_networks?mode=pfhttp://
        www.boston.com/business/technology/articles/2003/11/03/entertainment_
        firms_quietly_using_piracy_networks?mode=PF.
 44   Weedshare.com, http://www.weedshare.com (last visited Oct. 5, 2005).
 45   Wurldmedia.com, http://www.wurldmedia.com (last visited Oct. 5, 2005).
 46   Mary Crane, New Napster.com May Offer Upside In 2006, FORBES.COM, May
        8, 2006, http://www.forbes.com/markets/2006/05/01/napster-0501markets11.
        html.
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240                      Journal, Copyright Society of the U.S.A.

      As the best example of the new applications of windowing, the British
Broadcasting Company — which is now partially owned (37.5%) by News
Corporation — permits its eight million customers to view and exchange
files of a show for one entire month after an over-the-air broadcast of the
work.47 Online viewing habits are tracked and reported to advertisers
with a P2P file-sharing technology provided by Kontiki. The BBC is now
opening up 1.2 million hours of historic film now contained in its video
archive.48 If the strategy can be extended by other content owners,
windowing can facilitate the design of a common video archive that can be
financed largely by advertising and other third-party sponsorships.
      In the U.S., NBC and Universal Studios announced plans in Novem-
ber 2005 to make movie and TV content available to file-sharing custom-
ers on the Peer Impact network for a twenty-four-hour viewing period
after primary network view.49 At AOL Time Warner, a new service,
In2TV, now offers a back catalog of popular Warner television shows such
as Welcome Back Kotter, Beetlejuice, Lois & Clark, La Femme Nikita, and
Growing Pains.50 Disney also has implemented a rerun system that com-
bines direct streaming and advertising. In connection with world events,
CBSNews.com in July 2005, introduced The Eyebox, a video window that
adds advertising material to on-demand news clips from the CBS televi-
sion network.51
      Windowing models also allow content owners to introduce new mate-
rial to potential viewers. In August 2006, SpiralFrog, a privately held com-
pany, entered into a major catalog license with Universal Music Group.52
Users will have rights to stream and temporarily download to computer
hard drives and peripheral devices all of UMG’s song catalog for an entire
month. With a digital rights management system provided by Microsoft,
downloaded songs cannot be recopied. SpiralFrog users will have to view

 47   John Borland, BBC’s Model for Broadcast, CNET NEWS.COM, Apr. 13, 2005,
        http://news.com.com/Me+TV+NASCAR+pulls+away+in+content/2009-
        1041_3-5646080-2.html.
 48   Katya Hoffman, BBC Archive Goes Online, DAILY VARIETY REP., Aug. 14,
        2006, http://www.variety.com.
 49   Must P2P TV: NBC File Sharing, DCINFO WKLY. NEWSL., Nov. 21, 2005,
        http://www.dcia.info/News/newsletter_2005-11-20.htm NBC.
 50   Ed Oswald, AOL Plans P2P Download Service, excerpted from BETANEWS,
        DCINFO WKLY. NEWSL., Mar. 13, 2006, http://www.dcia.info/News/news
        letter_2006-03-16.htm.
 51   Rebecca Lieb, CBSNews.com Launches Far-Reaching Ad Network, CLICKZ
        NEWS, July 12, 2005, http://www.clickz.com/experts/brand/buzz/article.php/
        3519471.
 52   Eric Pfanner, Universal Backs Free Music Rival to iTunes, N.Y. TIMES, Aug.
        29, 2006, http://www.nytimes.com/2006/08/29/business/29cnd-music.html?ex
        =1314504000&en=e839ce9c8b1fbabb&ei=5090&partner=rssuserland&emc=
        rss.
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                                Digitization and its Discontents                 241

accompanying advertisements when selecting songs for temporary free
access.
      EMI and Qtrax announced a somewhat different licensing deal for
music combined with advertising.53 Advertising revenue will be split fifty-
fifty between the two sides. Listeners may listen to any track five times,
and have the additional option to purchase songs or subscribe to a pre-
mium service.
      If an openly compatible playing device can be found (as might be
provided by Microsoft), these new advertising services may be in a posi-
tion to displace Apple’s market-leading iTtunes model. Apple’s DRM
technology is now problematic to the record industry, as it does not allow
iPod users to buy downloads from other services. The industry may greatly
benefit if the peripheral platform can be opened, since many users are
deterred from purchase due to its general incompatibility with other
services.

VI.     CASUAL GAMES AND ADVERTISING

     Another key instrument for rich media advertising is the casual video
game, which can now be delivered over digital channels to enable two or
more simultaneously connected players to engage one another in interac-
tive play. Topping revenues of $240 million in 2005, casual games are ex-
pected to break $1 billion of sales revenues by the end of 2008.54
     Casual video games came to center stage in September 2005, when
News Corporation spent $650 million to acquire the game properties of
IGN Entertainment, which included Game Spy, File Planet, Team Xbox,
3D Gamers, Direct2Drive, and GameStats.com.55 Some 28 million unique
users (mostly young men) now view IGN every month, and over 100 mil-
lion page views are served monthly.56
     Besides enabling the standard message-based advertising that accom-
panies the service, video games are particularly powerful instruments for
product placement advertising. With placement technology from New
York-based Massive, Inc., product developers may create within the
game’s designated message areas — e.g., billboards, character clothing, di-
alogue — that can be remotely programmed for any number of days, and

 53   Sandy Brown, EMI’s Digital Decision, THESTREET.COM, June 5, 2006, http://
         www.thestreet.com/stocks/media/10289815.html.
 54   EMI Music Publishing Licenses Qtrax, DCINFO WKLY.NEWSL., Aug. 14,
         2006, http://www.dcia.info/News/newsletter_2006-08-14.htm#EMI.
 55   PlayFirst Partners with Wild Tangent, DCINFO WKLY. NEWSL., Sept. 8, 2005,
         http://www.dcia.info/News/newsletter_2005-09-08.htm.
 56   News Corporation to Acquire IGN Entertainment, Inc. (Sept. 8, 2005), http://
         www.newscorp.com/news/news_259.html.
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242                      Journal, Copyright Society of the U.S.A.

changed from time to time.57 Messages then may vary by geographic re-
gion, season of year, etc.58 Massive signed contracts in 2005 with the top
ten game publishers and major advertisers such as Coca-Cola, Comcast,
Dunkin’ Donuts, Honda, Intel, Paramount Pictures, T-Mobile, Universal
Music Group and Verizon.
     The advertising capabilities of online networks will advance yet fur-
ther in the development of massive multi-player distributed games (or vir-
tual worlds), such as Second Life.59 Operated by software residing on
interconnected servers in California, Second Life now offers to some one
million users the potential for virtual engagements that combine problem-
solving, cooperation, and competition in gamed situations. In virtual
space, users can create second selves called avatars, which can visit, make
friends, build homes, buy virtual and real items, and run businesses in on-
line universes. With an intriguing appeal to advertisers, Second Life has
sold in-game advertising space and storefronts to some thirty corporate
marketers including Sony BMG, Sun Microsystems, Nissan, Adidas,
Toyota, and Starwood Hotels, which can sell virtual and real world ver-
sions of their products in an electronic shopping mall.60

VII. NETWORK EFFICIENCY AND BANDWIDTH
     As a technical aspect of the new convergence, “data swarming” tech-
nology economizes on storage and transportation capacity. “Data swarm-
ing” works by splitting large content files into smaller elements that are
distributed across host computers that are interconnected to one another
by software distributed in the network. With the accompanying software
(which is voluntarily accepted), a requesting user of a particular content
file may reconstitute the distributed elements into a whole file for immedi-
ate display on his screen. Data swarming improves efficiency because it
uses idle computer capacity located nearer to the user and thus avoids the
need for centralized storage and longer transport pathways that may cost
up to 65 cents per GB (as distinguished from 3–4 MB now needed for a
popular song compressed by MP3).61
     With “data swarming,” transport networks are readily scalable and
can be ramped up to sustain higher levels of processing power in a matter
of seconds — quite useful for the transmission of live events (e.g., con-
certs, sports, award ceremonies). Finally, the distributed use of capacity
also increases the resiliency of the network to failures.

 57   Id.
 58   Massive.com, http://www.massive.com (last visited Oct. 5, 2005).
 59   Visionary Strategies, http://www.visionarymms.com (last visited Oct. 5, 2005).
 60   Richard Siklos, A Virtual World But Real Money, N.Y. TIMES, Oct. 19, 2006, at
          C1.
 61   Id.
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                                Digitization and its Discontents                 243

     Some comparative numbers may illustrate the potential economic ef-
ficiencies of data swarming. A software publisher hired P2P provider Red
Swoosh to deliver a 200 MB software package to 500,000 viewers. After
pricing the costs of traditional technology at $150,000, Red Swoosh offered
combined storage and transport service at $15,000.62 When the publisher
later added a five-minute video to the campaign, the estimated cost for
traditional networks rose to $225,000. Red Swoosh still charged $15,000.
Similar tenfold savings on television signals have recently been reported
by Zattoo, a commercial, DRM secure IPTV service developed by re-
searchers at the University of Michigan.63
     Perhaps the best example of the new convergence recently occurred
in a deal involving the MPAA and BitTorrent, a provider of “data swarm-
ing” technology that may now account for roughly one-third of all illicitly
used bandwidth, and a major contributor to the present fact that over
650,000 movies per day are illegally downloaded over the Internet.64 The
signatories to the new deal agreed to enable the distribution of legitimate
and DRM-protected cinema works using the same technology. For a first
time engagement between a movie studio and a P2P technology, Warner
Brothers Home Entertainment now uses the “data swarming” efficiencies
of Bit Torrent to deliver movies on demand.65 As noted above, Fritz At-
taway described this as a “marriage made in heaven,”66 and it is surely a
marriage of convenience.

VIII. TOWARD VIRTUOUS CYCLES
     As the system builds out, the market for digital content will increas-
ingly implicate a widening number of decisions by buyers, content produc-
ers, equipment manufacturers, and advertisers, who engage ideas and
transact business with one another. The engaged interaction produces vir-
tuous cycles of buyer use, equipment purchase, and producer investment.
For example, the willingness of any user to access or use capacity on an
online network, or upgrade related equipment, depends on the anticipated

 62   Reinventing the Boob Tube, excerpted from CNN/Money Report, DCINFO
        WKLY. NEWSL., Mar. 6, 2006, http://www.dcia.info/News/newsletter_2006-
        03-06.htm.
 63   Redswoosh, http://www.redswoosh.com/home_what_we_can_do_for_you.php
        (last visited Oct. 5, 2005).
 64   Quick-start, Long-play Internet Television Arrives with Zattoo P2P IPTV,
        http://sev.prnewswire.com/computer-electronics/20060524/SFW03724052006
        -1.html (last visited Oct. 26, 2006).
 65   Jonathan Arber, Content Owners Should Embrace BitTorrent, excerpted from
        Ovum Report, DCINFO WKLY. NEWSL., Dec. 5, 2005, http://www.dcia.info/
        News/newsletter_2005-12-05.htm#BitTorrent.
 66   Chris Marlowe, Warners Rolling with BitTorrent, HOLLYWOOD REP., May 9,
        2006, http://www.hollywoodreporter.com (available to subscribers only).
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244                      Journal, Copyright Society of the U.S.A.

availability of useful content. This depends on the willingness of content
owners to make material available, and advertisers to invest dollars to
sponsor the presentation.
     The deepening synergies between advertising, content, and network
build-out bring to mind a similar experience from early television, which
found its way in stages to a viable commercial model supported by adver-
tising. In the first phase of modern television, programming was domi-
nated by live acts — such as Milton Berle’s comedy show, professional
wrestling, and children’s programs such as Howdy Dowdy. Star appeal
here was related to the ability to provide impromptu entertainment. There
was little investment in screenplays, sets, and good actors, which no one
had the financial ability to provide.
     Screenplays came to the screen as marketers came to sponsor entire
programs; soap manufacturers sponsored soap operas. In this second
phase, Borax famously sponsored the program Death Valley Days and its
famous host Ronald Reagan. Nonetheless, programming quality was lim-
ited by the amount of money that the show sponsor was willing to commit
to put across the entire show.
     The modern model for free broadcast television finally emerged in a
third phase through the development of advertising agencies, which al-
lowed television networks to sell off ad spots to different buyers. With a
secure and diversified advertising market, networks more willingly in-
vested programming resources, and highly popular shows such as I Love
Lucy, The Honeymooners, and The Twilight Zone came into production
with brand name talent (Lucille Ball, Jackie Gleason, and Rod Serling).
The most popular television series were then re-licensed to local stations
(and eventually cable networks) in syndication markets, where additional
advertising dollars were generated. The depth of the content industry
then benefited from changes in the advertising technology and marketing
institutions. Consumer interest followed the cycle.
     Additional channels of financial support became available through
cable. Content providers were able to collect additional revenues from li-
censing fees charged to local cable operators (which collected them from
subscribers), premium fees charged directly to subscribers, or pay-per-use
related to individual views. Through the creative interaction of institu-
tions, technology, and financing arrangements, television grew to a highly
diversified form of low-brow entertainment so attractive to the tastes of
the American public.
     However content is financed, it is necessary to protect rights of attri-
bution, to bind metadata, and for advertising messages to remain fixed
with underlying content, and to ensure generally that content is not traded
without the appropriate messages provided by the sponsor. This would be
true even if the content were funded by advertising alone, the apparent
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                                Digitization and its Discontents                 245

unguent in the currently developing network. For to do otherwise would
vacate the incentives to put content and advertising together, and thus
eviscerate the financial support for a growing sector of freely available
information.
     Accordingly, even if the unit cost is free, digital rights management
and related content protection then are still necessary prophylactic aids
that can limit or eliminate unauthorized displacements of material and
sponsor affiliation. It is difficult to imagine that the security of such con-
tent can be adequately maintained if circumvention devices can be freely
manufactured and trafficked. With adequate control of access rights to
online property, the market can enforce versioning67 — the creation of
competing service alternatives where protected files can be traded for a
unit fee, made available to paying subscribers, temporarily loaned to an
introductory user, or streamed free of charge. However, the potential ver-
sioning will weaken seriously if users can engage in retransfer or arbitrage
— i.e., the free redistribution of content units purchased from one channel
or platform to another unauthorized alternative.
     Without access protection, there is then a very real potential for mar-
ket harm, though not one related to the measurable displacement of unit
sales commonly found in copyright law. Rather, entire business models
can be distorted or eliminated if advertising/content bundles are not de-
fended as copyrighted materials. The end result could be particularly
harmful to new entrants and other non-incumbents, who may attempt to
break new products and otherwise “get the message out” through exclu-
sive use of advertising and introductory offers.


IX.     LIBRARIES AND PUBLISHING68

     In my previous article, I identified a second major area for Internet
evolution — the transfer of information for scholarly research and related
intellectual products.
     With digital networking, libraries, civic organizations, teachers, and
scholars have great opportunities to widen connectivity, enhance content,
and design open platforms for interconnected engagement. Information
resourcing could include scholarly journals, online texts, trade books, mu-
sic, movies, and databases — all backed up with centralized archiving ca-
pability. In addition, a fair bit of grant money has gone into the
construction of online commons that would accommodate the legitimate



 67   See note 3 supra.
 68   CARL SHAPIRO & HAL R.VARIAN, INFORMATION RULES 53-82 (1999).
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246                      Journal, Copyright Society of the U.S.A.

sharing of free information among organizations composed of local citi-
zens and scholars.69
      The most advanced institutions involved in the handling of informa-
tion, book publishers and academic/research libraries may be some
“canaries in the coal mine” in the transition to a digital age for public
exchanges. In the words of a distinguished law librarian, “Statements such
as ‘information wants to be free’ may simply mean to the individual, not to
the library . . . . What libraries staunchly advocate is that individual users
should not have to pay for information obtained from their public
libraries.”70
      To discuss new policy domains, the historic mission of a library re-
quires some forward-looking qualifications in the context of digital works.
The otherwise attractive potential for free distribution of online material
often conflicts with the hard realities of the publishing industry. Like
other content industries, book production is an upfront cost technology;
i.e., 90% of the costs of a book involve the fixed cost of producing the first
copy and the related distribution and information process needed to put
the product before potential buyers.71
      By eliminating the need for warehousing, shipping, and product re-
turn, digital platforms are potentially attractive alternative distribution
technologies. However, digital technology can also seriously harm operat-
ing margins. First, if a publisher transitions a book to digitization, it must
then invest upfront in resources needed to produce both analog and digital
copies, since the former cannot be practically abandoned to any degree.
Furthermore, it is not clear whether the costs of digital transitions will
actually sell any more books, or simply shift the same buyers from the
analog sector (i.e., self-cannibalization). Finally, even a small decrease in
sales (due, e.g., to piracy or higher returns) can substantially reduce share-
holder equity.72
      Predictably, the Digital Millennium Copyright Act, which greatly re-
stricted circumvention activities and devices, greatly concerned the library
community, which became involved in highly-charged efforts to modify
the original bill, obtain additional exemptions, or support new legisla-

 69   In the course of writing this section, I have benefited from conversations with
         Ann Okerson, June Besek, Kevin Smith, and Karen Coyle, who are not
         responsible for any errors that I have made.
 70   For a review of evolving institutions, see Nancy Kranich, The Information
         Commons A Public Policy Report, Section II (2004), available at http://
         www.fepproject.org/policyreports/infocommons.preview.html.
 71   Lolly N. Gasaway, Values Conflict in the Digital Environment: Librarians ver-
         sus Copyright Holders, 24 COLUM.–VLA J.L. & ARTS 115, 134 (2000).
 72   Brad De Long, Economics of Publishing, BRAD DELONG’S SEMI-DAILY J.,
         Apr. 23, 2006, http://delong.typepad.com/sdj/2006/04/economics_of_pu.
         html.
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                                Digitization and its Discontents                    247

tion.73 However, while library efforts to reform the DMCA have often
proven unsuccessful, the market yet may be more open-ended than legal
critics are prepared to admit. Generally speaking, the library and publish-
ing community have an historic record of working together to resolve key
issues in a manner that often transcends legal prohibitions.74 Examples
includes the Gentlemen’s Agreement of 1935,75 the LIBLICENSE,76 jour-

 73   Book publishers in 2004 averaged about a 10% operating margin before pay-
        ing bond interest, corporate expenses and corporate taxes. Jim Milliot,
        Profits Marginally Better, PUBLISHERSWEEKLY.COM, Sept. 5, 2005, http://
        www.publishersweekly.com/article/CA6253796.html?text=profits+margin-
        ally+letter. If costs were to increase by a mere 5% (e.g., from 90 to 95 cents
        on the sales dollar), the operating margin would decrease 50%. Not count-
        ing for additional costs of bond interest and taxes, shareholder equity could
        then be expected to decrease by at least this percentage.
 74   Per the terms of H.R. 1201, the Digital Media Consumers’ Right Act (DM-
        CRA) introduced during the 109th Congress. Section 5(b)(1) set forth pro-
        visions for restoring fair use for access-protected works by allowing
        circumvention of a technological measure in order to make a non-infringing
        use of the work. Section 5(b)(2) would have allowed the manufacturing and
        distribution of a circumvention device if a substantial non-infringing use
        was possible. While the bill was purportedly consistent with legal standards
        established in Sony v. Betamax, the relaxed restrictions would have virtually
        eliminated the practical protections intended by the DMCA. If it had been
        enacted, rogue users would have easily obtained technology needed to de-
        feat protection, and to post and distribute copyrighted material throughout
        the Internet. This would have preempted sales and conceivably discouraged
        a number of investments in content and distribution.
 75   Ann Okerson, Associate Director of the Yale University Library, continues to
        stand by comments she made some times ago regarding the efficiency of
        markets and licensing:
           The market has brought librarians and publishers together; the parties are
           discovering where their interests mesh; and they are beginning to build a
           new set of arrangements that meet needs both for access (on the part of
           the institution) and remuneration (on the part of the producer). . . . [The
           current licenses] are in fact achieving legislation’s business more quickly
           and by other means. Instead of . . . allowing terms to be dictated to both
           parties by law, publishers and institutions are starting to make their peace
           together, thoughtfully and responsibly, one step at a time. Crafting these
           agreements and relationships is altogether the most important achieve-
           ment of the licensing environment.
        Ann Okerson, The Transition to Electronic Content Licensing: The Institu-
        tional Context in 1997 (1997), available at http://www.library.yale.edu/
        ~okerson/mellon.html.
 76   “The Gentlemen’s Agreement of 1935 was a voluntary agreement that set
        guidelines for the limits of acceptable reproduction of copyrighted materials
        on behalf of scholars. Developed in response to the challenge posed by the
        easy and inexpensive photographic reproduction of research materials, the
        Agreement allowed library, archives, museum, or similar institutions to
        make single photographic copies of a part of a copyrighted work in lieu of
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248                      Journal, Copyright Society of the U.S.A.

nal site licensing and transactional licensing,77 generalized subscriptions,78
consortial agreements,79 JSTOR,80 and ongoing efforts to enable digital
archiving.81 This negotiations-based approach is particularly appropriate
for managing library resources, where the conflicting objectives of easy
distribution and publisher recoupment now clash more than ever before.
     As a key move forward, book publishers and libraries might then co-
operatively conceive of, design, and extend new platforms to allow the
mediated use of entire online texts. This is now happening to a limited
degree; e.g., many libraries now have contracts with NetLibrary, e-Brary,
Blackwell and Cambridge, among others, that provide access to online
books that can be activated at the traditional library access points. So
preserved and protected, copyrighted texts may be augmented with de-
tailed use restrictions and search terms that libraries and publishers may
negotiate and modify from time to time. If extended, this could eventually
include rights for inter-library lending and remote access. It is also possible

         loaning the physical item. The copies were not supposed to substitute for
         the purchase of the original work, and they were intended solely to facilitate
         research. Liability for misuse was to rest with the individual requesting the
         copy, and not with the institution making the reproduction. The Gentle-
         men’s Agreement has long been recognized as one of the most important
         landmarks in the history of the fair use privilege.” Peter B. Hirtle, Re-
         search Libraries, and Fair Use: The Gentlemen’s Agreement of 1935 (Mar.
         20, 2006), http://dspace.library.cornell.edu/handle/1813/2719. See also Peter
         B. Hirtle, Research, Libraries, and Fair Use: The Gentlemen’s Agreement of
         1935, 53 J. COPYR. SOC’Y 545 (2006).
 77   For example, site licensors may provide to any designated computer location
         unlimited access to online content for an annual fee imposed per number of
         users or access points. For example, Elsevier’s LexisNexis Division now
         provides guaranteed simultaneous unlimited access to the company’s 1200
         scholarly journals for fees based on the number of attending students; op-
         tional sublicenses cover off-campus access.
 78   Generalized subscriptions permit access to bundles of a pre-specified number
         of articles from different journals that may subsequently be chosen by any
         reader.
 79   Established in 1997, library consortia accommodate pooled negotiation by li-
         braries; estimated cost savings range from 25 to 33%.
 80   Conceived with support from the Mellon Foundation, JSTOR is a not-for-
         profit organization that maintains a trusted archive of important scholarly
         journals for the purpose of enabling wide access. JSTOR is not a current
         issues database. There is a gap, typically from one to five years, before arti-
         cles are posted at http://www.jstor.org/about/desc.html.
 81   See Bill Steele, Mellon Grant Helps CU Library Study Digital Preservation of
         Scholarly Journals, CORNELL CHRON., Feb. 1, 2001, available at http://www.
         news.cornell.edu/chronicle/01/2.1.01/Mellon_library_grant.html; Kevin L.
         Smith, Digitized Books: A Question of Fair Use, HERALD SUN (Durham,
         N.C.), Aug., 27, 2005, at A9.
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                                Digitization and its Discontents                    249

to accommodate searches over wider topical terms that libraries may
devise.
      It is not financially practical here for book and journal publishers to
accommodate all potential lending activity of digital material at histori-
cally free levels. However, if a mixture of paid and free access can be
deployed, libraries may emerge as important search digital nodes in the
wider online network, while publishers might yet design additional tools
for monetizing their investments in new books.
      As search intermediaries, librarians can be attracted to the ability of
digital records to accommodate copious and growing amounts of
“metadata,” which are subject headings related to the topic of each book
and related information. A digital base of records calls to mind the online
Computer Library Center, which is an online computer library service that
now permits users to use any interconnected computer to find books based
on search topics and zip code. OCLC is now able to locate physical copies
of bibliographic and abstract information from books in 53,500 libraries in
ninety-six countries.82 In October 2005, the OCLC technical staff allowed
readers and librarians to add commentary and field information to any
WorldCat record. If general information on books could be so digitized,
any registered library user would have access to a centralized database of
book information organized by editorial opinion and the present standards
of library science. It would greatly exceed the current text-based searches
of GooglePrint,83 which are relatively imprecise search instruments.84
      On the money side of the equation, libraries may pay additional fees
for buying lending rights to both physical and online copies of a particular
book. Publishers here may set prices for online material to offset the possi-
bility that easy library lending may more readily cannibalize direct sales to

 82   OCLC and its member libraries cooperatively produce and maintain WorldCat
        — the OCLC Online Union Catalog — which contains holding records
        from most public and private libraries worldwide.
 83   GooglePrint is a project to digitize books from the world’s largest libraries —
        including Berkeley, University of Michigan, Harvard, and Yale — by scan-
        ning the content of entire books and making page texts available to search
        engine users who type in specific phrases.
 84   Kevin Smith, a scholarly communications officer at Duke University, writes:
          Librarians know that keyword searching through a full-text database is
          one of the most inefficient forms of searching; it produces a very high
          percentage of irrelevant hits — texts that use a word frequently but are
          not actually about that topic. Google Print is likely to increase the prob-
          lem of information overload inherent in Web searching without providing
          any of the remedies for that problem, like field searching and the ability
          to limit and sort sets of retrieved items, which online library catalogs now
          routinely include.
        Kevin Smith, Comments (Sept. 21, 2005), http://copyfight.corante.com/
        archives/2005/09/21/google_sued_for_massive_copyright_infringement.php.
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250                      Journal, Copyright Society of the U.S.A.

the consumer, as is now done with scholarly journals shelved at academic
libraries. With more complex licensing and monitoring arrangements, a
publisher may license libraries to “rent” books to readers for some period
beyond the basic lending period, allow home or office users to purchase
extended viewing privileges or borrowing rights beyond the basic package,
or direct unsuccessful searches to its own commercial Web site in order to
purchase books or page licensing arrangements.
      To regulate the growing complexity of an online permissions system,
digital rights management here too could accommodate a diverse and
growing group of interactions and contracts. To accommodate this, a spe-
cialized rights expression language may be designed by an inclusive forum,
such as the International Digital Publishing Forum (IDPF), a trade and
standards association established in 2002 for promoting digital publishing;
the organization now consists of book publishers, technology producers,
digital content retailers, libraries, and educational institutions, inter alia.85
The IDPF recently developed an accepted rights grammar for ebooks us-
ing the MPEG-21 Rights Expression Language. While the new grammar
does not now accommodate a lending right for digital works owned by
libraries, it has been suggested that digital lending could be accomplished
through specialized tracking services made possible by DRM.86 Once a
basic lending right is established, a greater number of convenient permis-
sions might reasonably follow.

X.     CONCLUSION
     Modern markets move forward by negotiations as much as the unit
exchange of produced goods. There is then no reason to perceive an artifi-
cial choice between polar systems of property rights mediated by pay-per-
use transactions and of centralized direction mediated by government
rule-making. Market resolutions would include the development of ac-
commodative procedures — such as blanket licenses, advertising revenues,
service versions, and free goods — particularly when transaction costs of
using bilateral exchange are prohibitive.
     Related to this idea is the “new institutional economics,” which seeks
to describe how private institutions form and evolve in the for-profit sec-
tor. Over time, economists — such as Ronald Coase, Oliver Williamson,
and Andreas Papandreau — came to understand how different organiza-
tional modes may overcome informational limits to deal transaction, result
monitoring, and rule enforcement. It is the related abilities of these institu-

 85   International Digital Publishing Forum, http://www.idpf.org/ (last visited Oct.
         20, 2006).
 86   Karen Coyle, XrML – A History of Usage Rights (June 3, 2004; updated Aug.
         19, 2004), http://www.kcoyle.net/xrml.html.
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                                Digitization and its Discontents                    251

tions to adapt, and of the system to sort out the adapters, that completes
the evolution of a complex economic system.
     From an economic perspective, property rights in intellectual prop-
erty are properly viewed as legal grants that enable the social governance
of a controlled spectrum ranging from unalloyed markets to government
control. Through a diverse collection of institutions and procedures, mar-
ket agents along the spectrum may come to understand the contours of the
imperfectly known domain that they have come to share. With stepwise
advance, agents can establish and reexamine objectives and balance and
adjust to offsetting goals.
     The wider array of decision points in an open market has more oppor-
tunities to collect and act on diffuse bits of specific information, more ca-
pabilities to test new positions, and more potential channels to receive
feedback. Parties may also devise new market procedures and form lim-
ited collective oversight of pooled resources to accommodate adoptable
operating and investment rules on an ongoing and “catch as catch can”
basis.87
     The Copyright Office articulated a similar point after the DMCA was
passed:
              When changes in technology lead to the development of new
              markets for copyrighted works, copyright owners and users
              should have the opportunity to establish mutually satisfactory re-
              lationships. A certain degree of growing pains may have to be
              tolerated if the government is not to step in prematurely, in or-
              der to give market mechanisms the chance to evolve in an ac-
              ceptable direction. At some point, however, existing but
              dysfunctional markets may require adjustments in the law. Tim-
              ing is therefore key.88


 87   See Charlotte Hess & Elinor Ostrom, Ideas, Artifacts, and Facilities: Informa-
         tion as a Common-Pool Resource, 66 LAW & CONTEMP. PROBS. 111 (2003),
         available at http://www.law.duke.edu/journals/lcp/articles/lcp66dWinter
         Spring2003p111.htm; Siegfried V. Ciriacy-Wantrup & Richard C. Bishop,
         “Common Property” as a Concept in Natural Resource Policy, 15 NAT. RE-
         SOURCES J. 713, 715 (1975). This does not imply that all potential users of a
         common pooled resource have equal rights of access, usage, management,
         and withdrawal, nor that all such al transactions involving such a resource
         are necessarily free. Common pooled resources should not then be con-
         fused with Lessig’s open access domains: “a part of our world, here and
         now, that we all get to enjoy without the permission of any.” LAWRENCE
         LESSIG, CODE AND OTHER LAWS OF CYBERSPACE 134 (1999).
 88   U.S. COPYRIGHT OFFICE, REPORT ON COPYRIGHT AND DIGITAL DISTANCE
         EDUCATION 144 (1999), available at http://www.copyright.gov/reports/de_
         rprt.pdf.
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