How the music business can partner with ISPs to develop new online music services and tackle illegal downloading

1. Background

The big picture: where is the business and what difference will ISP partnerships make?

The music business is going through a period of great change. Record labels, whose investment in new music helps to drive the entire sector, are currently focusing their efforts in three key areas:

1) Continuing to work in partnership with artists to create music, and delivering it in ways that consumers want is at the core of what record companies do. As 75% of domestic record company income is currently derived from the sale of CD albums, physical sales remain a priority area.

2) The creation, growth, and protection of new mobile, online and licensing business models that cater for consumers who prefer to enjoy and access music in ways other than CD buying.

3) Diversifying to generate income outside recording copyrights altogether. Many new artist investment deals include other music revenue streams (often called 360 degree models).

There is little doubt that the widespread availability of music online - illegally and for free - is undermining record labels' ability to generate income, which challenges their ability to maintain investment in new music. In addition to directly cannibalising physical sales, the new online business models are clearly unlikely to reach their potential unless unlawful online consumption is curbed.

ISPs lie at the heart of this problem and should be at the heart of the solution. Access to unlicensed music has been a major factor that has helped to drive demand for their broadband subscriptions. However, where music is downloaded illegally, nothing is paid to the artists, performers and songwriters whose talent and hard work has helped to create that demand, or to the companies that invest in them.

Working with ISPs to tackle unlawful downloading is clearly just one part of a very big picture. But it's a big part; the single most important thing that can be done by the BPI to help the music business prosper in the digital age.

It is in the interest of any business to be paid for its work, so in representing music companies, our interest in preventing the unpaid consumption of music is clear. But we firmly believe that creating an internet where property rights are respected, and where creativity is fairly rewarded, is in the interest of all of us.

How big a problem is unlawful downloading?

Studies show that more than six million ISP customers regularly use their broadband accounts to unlawfully download and distribute music online. In excess of 5 million tracks are available for UK consumers to access legally through numerous licensed services. By the end of 2007, more than 150 million single-track downloads were sold in the UK since iTunes' launch in 2004 - but unlawful and unpaid consumption still dwarfs legal sales by a factor of 20 to one.

The link between illegal downloading and declining music sales has been proven time and again in academic research and market surveys. We do not believe that p2p is solely responsible for every problem the music business faces, but we believe it is the single most important factor negatively impacting upon the business - and it has a direct effect on other areas, such as declining retail value and migration of consumer spend on to other entertainment products.

Losses to the UK record industry from illegal downloading run to hundreds of millions of pounds. These losses could be reduced significantly if ISPs were to play a fair role in helping to dissuade their customers from illegal activity.

Is the BPI's renewed desire to partner with ISPs an admission that suing consumers doesn't work?

Legal actions against end-users have played an important role in establishing that filesharing music without permission is against the law and in creating a deterrent effect.  The actions have attracted media attention to the issue and raised consumers' awareness that downloading music via peer-to-peer networks is illegal.

But this approach has limits. Given the high costs of civil litigation in the UK, it is possible to bring only a relatively small number of private civil actions, compared to the scale of the problem. We believe that it is preferable, wherever possible, to communicate with the individual (or account holder) concerned, to give them the opportunity to prevent any illegal activity that may be occurring on their account and to reserve litigation for the most serious cases of infringement.

How exactly does the BPI wish to partner with ISPs?

We see two areas of activity where we can partner with ISPs: working together to reduce illegal consumption; and developing new legitimate commercial services that they can offer to their customers as a better alternative to illegal downloading.

We see ISPs as important partners, but it is unrealistic to expect new commercial initiatives to get out of the starting blocks when ISPs are doing little or nothing to combat illegal downloading on their networks.

Why are you looking to partner with ISPs now?

The BPI has been talking to ISPs for many years about tackling unlawful downloading (see timeline below). For the past 18 months, the BPI has focussed upon putting in place a self-regulatory "three step" procedure with UK ISPs and individual record companies have been talking with various ISPs about potential new business models.

2001-2: The first generation p2p service Napster closes in the US after RIAA litigation. BPI urges UK consumers not to download illegally as early licensed digital music services are developed. The BPI opens direct talks with internet service providers about how to partner to tackle unlawful downloading.

2004-5: The BPI begins issuing instant messages to UK p2p uploaders, explaining that their actions are unlawful and expose them to legal risk before legal cases are brought against UK p2p uploaders. More than 150 UK ISP customers faced legal action for p2p uploading. Most cases are settled out of court, but 100% of cases that went to court found in the BPI's favour. The BPI partners with charity Childnet and the pro-music coalition to publish and distribute a free information guide for parents on how to avoid legal risks on the internet.

2006-7: Having won p2p uploader test cases, BPI begins to send ISPs evidence and urges them cut off customers of theirs whom the BPI has identified as abusing their broadband accounts. The UK government's Gowers Review calls for ISPs to reach agreement with music industry over preventing p2p piracy, and sets the "end of 2007" as a deadline for ISP agreement before considering legislation.

2008: At the Midem conference in January, U2 manager Paul McGuinness echoes the frustration in the music community at ISPs’ refusal to tackle the issue. The publication of the government's Creative Economy Programme Strategy document in February again calls for voluntary solutions, but confirms legislation will be in place by April 2009, should private-sector negotiations fail.

If you’ve been talking for 18 months about this, why haven't ISPs and the music business come to an arrangement?

Essentially all the key elements are in place. The creative industries, the government and the internet service providers themselves all agree that the unlawful consumption of creative works online is an issue that needs to be addressed. Equally, all parties agree that ISPs offering their consumers safe, licensed, compelling new music services would be a good thing.

But engagement from ISPs remains very limited. We suspect the core reason is that while combating unlawful consumption and developing new business models is a priority area for the music community, it isn't for ISPs. Even those ISPs that accept the need to act are concerned about taking action before their competitors do so.

What next? If you can't reach a deal does this mean the government will have to legislate?

The government has reiterated its view that a voluntary solution is the preferred route.  The BPI and the wider music community agree on this point.

But we are also realists, and government has become frustrated - as has the BPI - at the lack of progress, and no deal is imminent. For this reason government has outlined a clear timetable for consultation on legislation that will undoubtedly assist both sides in reaching voluntary solutions.

What kind of legislation might the government introduce?

That is going to be the subject of a consultation exercise which will begin soon.  We would hope that it would enshrine what we have been asking of ISPs - the three-step process of guidance, suspension and account termination. If we cannot reach agreement on this with ISPs, the introduction of new legislation to force ISPs to act on knowledge of illegal activity is may be necessary.

2. What the BPI is specifically asking of ISPs.

What is the BPI trying to achieve?

The BPI is trying to negotiate a "three step" procedure with UK ISPs that we believe could dramatically reduce the unlawful availability of music on their networks.

Under the BPI proposals, if an ISP’s customer’s account is being used to fileshare music illegally, they would be informed about what is happening and advised as to how they can avoid it happening again.

If the advice is not followed, the customer does not act on the letter and the account continues to be used unlawfully, the account is suspended pending a signed undertaking from the customer to the ISP that the unlawful activity will cease. If, after the suspension and undertaking, the customer‘s account is used unlawfully a third time, the contract is cancelled.

As a preliminary to this three-step procedure, we would also like the ISPs to send a pre-emptive letter to all their customers that would clarify the new policy, and offer their customers simple advice on what immediate steps they can take to avoid problems (such as talking to others in the household who use the internet, checking the computer for p2p software, and securing any wireless networks against band-jacking).

Why does the BPI think this will be effective?

More than six million people regularly use broadband accounts to download music illegally, and nothing is currently being done by ISPs to deter this unlawful activity.

The broadband account holder may be unaware that their account is being used unlawfully. They may have other users logging on to an unsecured wireless network, or more likely, another person in the household is using p2p software. In these cases an advisory letter would certainly help a responsible account owner to take steps to address the problem.

If the account holder is aware their account is being used unlawfully, the ultimate sanction of losing your internet account would provide an effective deterrent: studies suggest that 70% of illegal downloaders would stop on receipt of an advisory letter.

How can the BPI tell what broadband accounts are being used unlawfully?

In order for computers to communicate over peer-to-peer networks they transmit an IP address – a unique number that identifies a specific computer, on a specific ISP, at a specific time. This allows one computer to identify another. Once the computers are connected, then they can exchange data. The BPI simply connects to a host computer offering files and downloads them in the same way that any other peer-to-peer user would, capturing evidence as it undertakes the download.

The evidence the BPI collects and provides to ISPs is of an extremely high standard.  It is the same quality of evidence that was provided in more than one hundred cases to the High Court in litigation against end users and which was accepted by the court in each case. Most of these cases resulted in settlements, and all of those on which judgment was given found in the BPI’s favour.

In this case, instead of using the evidence to begin a process of legal action against the individual customer, the BPI sends the evidence to their ISP, who can identify that customer from the IP address and send them an advisory letter.

Doesn’t this raise data protection or privacy concerns ?

No. Under the BPI’s proposals, the ISP is not asked to disclose any personal data to the BPI or anyone else, and the evidence collected by the BPI is that which made publicly available by the account holder to any other peer to peer user. Once it has received evidence from the BPI, the ISP communicates with their customer, without revealing the customer’s details to the BPI.

If an ISP's customer is not aware that their account is being used unlawfully, they may appreciate being advised that their security is being compromised by P2P filesharing. If, on the other hand, they are fully aware of what is going on and are deliberately engaging in piracy, we believe that the three-step process is a fair way of giving them an opportunity to avoid further action being taken against them.

Why should ISPs be forced to police the internet?

ISPs are not being asked to police the internet: the BPI is asking them to act on information. ISPA claim that asking their members to act responsibly is like asking Royal Mail to open every letter they handle. Although a good soundbyte, it doesn’t reflect what’s being proposed.

Rather than being asked to open any letters, we are asking ISPs to contact the sender when told they are sending something unlawfully. The ISP is not being asked to do any detective work, just to act on information provided to it, by communicating with its customer and withdrawing its service if the illegal activity continues.

Further information

BPI Communications Department

T: 020 7803 1395 | E: press@bpi.co.uk | W: http://www.bpi.co.uk

The BPI (formerly British Phonographic Industry) represents the British recorded music business.