Thanks Cat!

“For somebody who has spent 30 years in the music industry, you instinctively know this stuff is going on. But when you actually sit looking at your computer and see a number that says 95% of people are copying music at home, you suddenly go, ‘Bloody hell.’”

Feargal Sharkey, former Undertones front man and British Music Rights chief

The Guardian reports this morning that more than half of young people in the U.K. copy the songs on their hard drives to friends and even more swap CD copies.

“Research carried out by the University of Hertfordshire suggests that for 18-24-year-olds, home copying remains more popular than file sharing. Two-thirds of people it surveyed copy five CDs a month from friends… Overall, 95% of the 1,158 people surveyed had engaged in some form of copying.”

Full story here.

The battle over the future of music appears to be coming to an end, but a new and hopefully smaller skirmish is about to begin between those pushing ISP taxes, and those favoring voluntary licenses.

The argument is no longer about whether or not the industry should compete with pirates or fight them, but how exactly the labels should compete. Last week it was announced that Warner Music Group had hired Jim Griffin to figure out a way to implement a $5 a month surcharge on your monthly internet bill, which has come under fire already from the tech community for being too much like a tax, or as Micheal Arrington put it, a protection racket. “The plan essentially comes down to telling ISPs that they can avoid any copyright infringement liability if they pay the fee on behalf of customers” Arrington writes, “and while the government wouldn’t be directly involved, the willingness of law enforcement agencies and the judicial system to enforce civil and criminal copyright infringement laws is the stick by which Griffin will convince ISPs to jump on board. It’s government endorsed extortion, nothing more and nothing less.”

One concern is this move would chill innovation in the music industry. Another objection is that the labels rejected this same idea years ago. “People were excited about this idea in the last days of Napster,” Eric Garland, CEO of BigChampagne, told Frank Rose at Wired. “But the music companies were not only not receptive to it, they considered it treasonous. Now the music companies are desperate — and people are saying, ‘No, we had that conversation, and you said we’ll see you in court.’”

The other solution being put forward by the EFF, music lawyer Bennet Lincoff, and in fact, most of the file-sharing community, is a voluntary licensing scheme, which in my opinion makes a lot more sense. As the EFF’s Fred von Lohmann writes:

When need a solution that allows for many organizations to operate, at different price points in different markets and doesn’t concentrate power. File-sharing communities are already criticizing the tax suggestion, but are open to the idea of a free-market solution. This isn’t just an economic/technological fight anymore, it’s also cultural. Piracy has become a youth movement in its own right, and if the industry wants to win this fight, it needs to come to the table with this community in real and meaningful way.

Last week in San Jose, Attorney General Michael Mukasey made the claim that piracy is funding terrorism. “Counterfeiting and piracy generate huge profits, much of it flowing to organized crime” he said at the Tech Museum of Innovation. “Criminal syndicates, and in some cases even terrorist groups, view IP crime as a lucrative business, and see it as a low-risk way to fund other activities.”

Mukasey was widely criticized for this statement, partly because everyone is so bored of this administration using terrorism as an excuse for all kinds of ass-hattery, but mostly because he didn’t have any evidence to back up his claim. But he’s not the first person to say this, and he’s probably right, at least in part.

The revenue streams that fund terrorist organizations are both legitimate and dishonest, not to mention diverse, and trickle through complex financial networks that make Bear Stearns hedge funds look as sophisticated as a lemonade stands. Along with drugs, prostitution, slavery, identity theft, smuggling and all other forms of organized crime, it’s very likely that organized for-profit piracy is a source of funding for a number of terrorist outfits. Piracy is a low-risk illicit activity that can help all kinds of shady businesses save money. Why wouldn’t the terrrists be getting into it?

So ignoring, for a second, the poppy fields of Afghanistan, the flow of money from the oil industry, state sponsorship of terror, blood diamonds, the diversion of funds from suspect charities and all the other vastly more significant capers that fund terrorism, let’s assume piracy is the most threatening of all freedom-hating cash cows. If pirated software, DVDs and CDs are such a grave threat to Western civilization, then what Mukasey is really saying, without actually saying it, is that in the interests of national security and the American economy, not to mention freedom, peace and justice for all, we need to legalize file-sharing right now.

As Nate Anderson notes over at Ars Technica, General Mukasey “managed to make it through an entire speech on crime and intellectual property without suggesting that noncommercial P2P file-swappers are somehow equivalent to criminal gangs running huge Asian stamping operations.” Read between the lines people. What I think Mukasey is trying to tell us, without upsetting the RIAA, is that file-sharers are the good guys here. Freedom fighters. What he’s insinuating is that rendering pirate goods irrelevant by monetizing and legitimizing digital distribution in all its forms is a way to quash terrorist threats.

If we can use digital distribution legally the way we are using it anyway, who needs $5 DVDs and bootleg copies of XP? (no one wants to pirate Vista, which isn’t something Microsoft should be too excited about) Prohibition style wars don’t work, this we know. Repealing prohibition got rid of the racketeers in the 1930s, so by Mukasey’s logic, monetizing file-sharing should take care of the terrorists right?

I feel safer already.

Music is a central part of many of the stories in The Pirate’s Dilemma, so naturally I tend to talk about music a lot in my keynotes. It would be great to use some of the music I mention in my talks, but there is no legal way for me to do this. I would happily pay for this privilege, but it is impossible. I checked with someone I know at ASCAP, I asked my speaking agency – same answer. There is simply no way for this to happen legally.

However if I do decide to use a few snippets of music anyway, there is a huge legal machine that could come after me. Some large organizations make you sign a contract indemnifying them for up to $1m in damages, just in case you do use something you weren’t supposed to. You’re not given an opportunity to pay to use music, but if you do it anyway, it’s possible you’ll pay dearly.

And herein lays the problem with the music business. There can’t be much money in royalties earned from people using music clips in PowerPoint presentations, but there is some. There are a million other ways people use music that the music business would never consider as revenue streams, because they are tiny. But if you use music anyway when legally you’re not supposed to, which all of us do, apparently it’s not too much trouble to punish you.

The future of digital media is not one large revenue stream. Lawsuits cannot control the flow of digital information. People are going to use your stuff anyway. The only thing you can do is give them the option to pay for it.

Current TV just put up an interview I did a few months back with Brooklyn producers John Carluccio and Mark Kotlinkski - They dug up some cool slides I haven’t seen before. Mark also has a production outfit called 88 Hip Hop which does some great stuff - look for his film The Mural Kings about legendary graffiti artists TATS CRU - which is well worth checking out.

I did an interview for Booz Allen Hamilton’s strategy + business magazine with Edward Baker - you can read it here.

Pharmaceutical companies spend more on advertising than they do on research and development, and yet most people have a negative view of the industry thanks to debacles like the Vioxx scandal.

The big margins in pharmaceuticals are in drugs rich people use, like Viagra. There’s not a great deal to be made on malaria tablets and anti-AIDS drugs, and patented malaria tablets and anti-AIDS drugs are often too expensive for most people in countries like Brazil, Argentina, Thailand, Egypt and China who desperately need them.

As a result, in countries including Brazil, Argentina, Thailand, Egypt and China, pill pirates are saving lives by offering illegal, albeit life-saving drugs at prices that make financial sense to the residents of those countries. Their governments are all ignoring Western patent laws, because letting their citizens die in the name of profit isn’t exactly a vote-winner.

In the book I talk about how competing with pirates using Joseph Stiglitz’s idea of a prize system could help the drug companies create better, cheaper meds for some of the world’s poorest people - an idea that a lot more people are getting behind. But also I’m willing to bet my deductible that by competing with pirates in the developing world, the drug companies could turn around their image problem all over the world.

If you’re a drug company making no money on an anti-leukemia drug in Thailand, because no one there can afford the Western price, what’s the harm in lowering your prices and competing with the pirates selling cheap knock-offs? The marginal cost of a pill is tiny, and you’re not making money in this market anyway. There is an element of risk involved with lowering your prices, sure, but if you’re a multi-national company of any kind, you should be able to master the art of market separation, at least at a basic level like this. And besides, think of the upside.

By saving lives in one country, you create a positive piece of PR you can use worldwide, something that you as a drug company spend billions trying to create, that is currently in very short supply.

Novartis are already starting to do this in Thailand, India, and in other developing countries, and are winning corporate social responsibility awards as a result. TV ads will only get the drug companies so far, but acting in a socially responsible way overseas is likely to win hearts and minds at home too. And as foreign markets develop, being the trusted brand is going to be a huge competitive advantage in the long term.

The pirates are out there anyway. Fighting pirates doesn’t work when we’re talking about music files, never mind saving human lives. Good corporate responsibility practices are much more potent than empty advertising messages, especially if you PR them the right way. Saving lives in the developing world won’t kill the drug companies, but it could revitalize their ailing reputations.

Here’s the full speech from my keynote last week at The Medici Summit on when and how it’s best to compete with pirates. There were some amazing speakers at this conference, check the Summit website for more videos over the coming months.