War on File-Sharers Spells D-o-o-m for Net Neutrality

The UK government is planning to promote "attractively packaged content" on the internet, bowing to pressure from copyright owners to prevent online piracy.

Only figures for the music industry are cited in the consultation paper, yet various regulatory and co-regulatory solutions are proposed that will affect all copyright content online.

The paper claims that about 6.5m people in the UK (25% of UK internet users), engaged in illicit P2P file sharing in 2007. This is estimated to "cost" the "music industry" £1bn over the next 5 years, against revenues of about £1bn per annum.

So, where's the problem? The "music industry's" digital music sales increased by 28% in 2007. Sure, declining CD sales resulted in a loss, but that's like saying Ford made a loss because no one wants to by the Model T anymore. It is also conceded that the decline in CD sales wasn't due to piracy alone - supermarket discounting and the shift to digital purchases were chiefly responsible. In other words, the "music industry's" woes are born of consumer dissatisfaction.

Consumers are used to getting content for free online, knowing that providers are making money out of advertising. So it's no surprise that 91% of survey respondents file-share because the content is free. More telling is that 42% say it's because they could find everything they were looking for. In other words, constraining supply by "attractively packaging content" doesn't work, and the music industry needs to get with the programme.

Of course, file sharing isn't actually not free. File-sharers spend time and pay for wireless technology, proxy servers, encryption and communications to download the material. No figures are given for how much revenue this generates, but at 6.5m UK consumers, it seems to be a sizeable market. I wonder who's making money out of that?

The chief cause of music industry misery actually seems to be the cost of enforcing copyright via the clunky legal system. They say it can cost £10,000 for each court order to obtain the IP address for each file sharer. I'm prepared to believe that, and I'm all for reducing the cost of enforcement. But that problem shouldn't need a "memorandum of understanding" among the rights owners' associations, network service providers and goverment, paragraph 3 of which says this:

"Many legal online content services already exist as an alternative to unlawful copying and sharing but signatories agree on the importance of competing to make available to consumers commercially available and attractively packaged content in a wide range of user-friendly formats as an alternative to unlawful file-sharing, for example subscription, on demand, or sharing services."

One shudders to think what is meant by "attractively packaged content". But it's implicit that any such packaging will be done by, and must suit, the few industry players who signed the MOU.

And that implies we'll be forced to pay for premium content bundled with rubbish, like "albums" on CDs. A sort of packaged internet, chosen for us by cosy institutions.

The neutral, open internet appears to be doomed.

PS: The Society for Computers and Law response to the consultation can be viewed here, and the SCL's response to proposals to increase the penalties for criminal infringement of intellectual property rights can be viewed here.

Closure of Zopa's US Credit Union Program Contrasts P2P Model

It's a sad day at Zopa, which has announced the closure of its US credit union programme due to adverse market conditions for credit union deposits and loans. My sympathy to the whole team.

But, by comparison, the steadily growing success of Zopa's UK P2P model starkly demonstrates the benefits of enabling simple, capital-efficient, transparent lending directly between responsible individuals, as opposed to the intricacies of even a straightforward savings and loan operation like a credit union.

And it's ironic that the US regulatory system could permit everything from NINJA loans to CDOs riddled with unquantifiable risks, yet fail to accommodate a model that has maintained such low delinquency in the UK for over 3 years now, and seems to be repeating that success in Italy.

Maybe one day US regulators will be more receptive.

Nanny Home Office to Record Everything

The Home Office continues to build an all-seeing Nanny State at our expense, regardless of proportionality, competitive and low-cost communications or the need to conserve our taxes to support the financial system.

The proposed Data Retention Regulations require UK public network providers to retain data that identifes the source, destination, date time and length/size of every single phone call and email on their networks, as well as the type and location of the device involved. Using that data, authorities can of course find the content in, ahem, 'other systems'.

"... We [the Home Office] consider that these measures are a proportionate interference with individuals’ right to privacy to ensure protection of the public. Previous debates have concluded that the retention period is a significant factor in determining proportionality. In the draft Regulations at Annex A, we propose to continue with a retention period of 12 months."

Failing to mention, of course, that the Home Secretary can extend the retention period to 24 months, merely by written notice. And ignoring the fact that the cost is in secure storage, retrieval and deletion, for which the Home Office is now infamous.

This particular initiative has been handed to us (with Home Office complicity) by European Directive 2006/24/EC, conceived amidst the panic of the 'war on terror'. So, of course, it must be well considered and completely necessary today. It's also a natural extension of the Regulatory of Investigatory Powers Act 2000 (RIPA!) which David Blunkett introduced to such a warm welcome and which has been critical to Local Authorities' success in their war on dog-fouling [checks shoes for 3rd time today]. But just to add weight to its claim of proportionate impact on our human rights, the Home Office cites a vast empirical study undertaken by independent experts:

"During a two week survey in 2005 of data requirements placed by the police, there were 231 requests for data in the age category between 6 and 12 months old. 60% of these requests were in support of murder and terrorism investigations and 86% of the requests were for murder, terrorism and serious crime, which includes armed robbery and firearms offences."

So, we need this giant database and retrieval system for names, dates and places for every single communication on a British network in order to support about 200 data requests a month. Well, clearly the new regulations weren't needed to enable these requests to be made in 2005. And history appears not to record how critical the results were to solving a crime. Murder is an ironic justification, given how firmly the Home Office is holding the pillow over our faces. However, while the unsolved murder rate has nearly doubled over the past decade to 52, the Tory response missed a golden opportunity to justify investment in some enormous database to prove the exact time I called last night to say I'd be home to read stories. Instead, they merely blamed this rampant surge in mayhem on "police being overwhelmed with red tape, bureaucracy and government targets that distract officers from protecting the public." I feel their pain.

Ah, yes, the cost. The good news is that the taxpayer is to reimburse the network providers the "additional costs for retaining and disclosing all communications data". The Home Office claims this will amount to a suspiciously precise "£68.44m capital, £39.40m resource over 8 years", whatever that really means. Is the £39.4m perhaps an annual figure? Is it inflation adjusted? It assumes no investment in public sector systems, so that must be hidden elsewhere. Weirdly, it also assumes that electronic communications will cease in the UK in 8 years time, rather than grow exponentially. Perhaps the database will enable Plod to figure out whodunnit.

In the meantime, the Home Office claims it will avoid the disproportionate impact of all this on small firms. This assumes that either (a) there will be no more small firms providing network services in the UK (sad, but now plausible) or (b) small firms will be able to carry the cost of investing in the additional storage and retrieval systems until their requests for reimbursement are lodged with the Home Office, processed, approved and finally paid. Either way, start-ups and other competitive, low-cost network providers can't afford to play in that sort of bureaucratic game.

Next: average speed camera networks.

PS: the Society for Computers and Law response to the proposals can be viewed here.

It's Double, Not Quits, for UK Bank CEOs

Guess who said this yesterday:

"Our strategy is clear. It is to achieve good growth through time by diversifying our business base and increasing our presence in markets and segments that are growing rapidly."

Clue: he's a chief executive of one of the banks that has today asked the UK taxpayer for a helping hand.

Give up?

You're right. Perhaps he should, along with the other heads. Surely it's worth considering that the CEOs who oversaw the unbridled expansion of recent years are the wrong people to restore confidence to the banking system? Citigroup made the change almost a year ago, after all.

Where is shareholder activism when we need it most?

I'd also argue that banks (and insurance companies, for that matter) have demonstrated that they are in fact ill-equipped to commit very much in the way of capital, if any, to 'rapid growth' opportunities...

The Great PPI Robbery

It's stunning enough to see yet another hefty fine for misselling "payment protection insurance", or "PPI", let alone one that costs Alliance & Leicester £7m of precious capital in these troubled times.

But, worse still, the findings suggest that the FSA let this go undetected for 2 years, leaving 210,000 consumers to find the extra £1200, plus interest in the meantime.

Meanwhile, the Competition Commission has also waited until now to get tough on banks who it alleges have raked in a combined £1.4bn in "excess profits".

Given the pace of enforcement to date, is it conceivable that A&L will be the last bank caught ignoring financial regulation?

PS: the FSA fined Egg £721,000 in December 2008, for mis-selling 106,000 PPI policies to its card customers at an average of £156 each for the period Jan 2005 to Dec 2007.