LAS VEGAS, NEVADA – If I had a nickel for every time I’ve heard somebody (including CEA President Gary Shapiro) say artists can compete with free, I would be richer than any artist who ever tried to sell his work on a peer-to-peer network. But this troublesome meme (you can occasionally compete with free, as in the ubiquitous example of bottled water, so I won’t use the term “canard“) won’t go away, even though it leads to very dangerous and illogical thinking.

Yes, you can compete with free. And you can play Fur Elise on a synthesizer by bouncing orange balls off the keys from a height of six feet (I saw a very talented performer named Wally Eastwood do that last night), but that doesn’t mean it’s easy or even something that makes sense to do, the part of “compete with free” that is implied.

That brings me to today’s P2P Media Summit here in Las Vegas sponsored by the Distributed Computing Industry Association. I spoke at this, one of CES’ affiliate conferences, but I’ll save that for another entry. No, I’m more motivated to write about this compete with free notion, that crystallized during a keynote by LimeWire CEO George Searle.

It is no secret to readers of this blog that I have serious problems with LimeWire and its regard for creators. On a panel here today Association for Competitive Technology President Jonathan Zuck said too many p2p providers have taken creative works “involuntarily” and built business models around them without including copyright owners first. LimeWire is obviously in that camp.

But Searle today outlined the steps he feels his company is taking to reach out to copyright owners. Today LimeWire rolled out version 5.0 of its software, and now when someone searches for a copyrighted work in LimeWire’s gnutella search engine, if that work is available on LimeWire’s licensed retail operation, there will be a link to the right — clearly designated as an advertisement, like on a Google search return — where the searcher can go to purchase the work.

Okay. So someone using LimeWire, where you don’t have to pay, searches for a song in a search engine he or she knows will return links that doesn’t require payment, yet that person will for some reason then click on the link to pay. Hmm.

I asked Mr. Searle about that after his presentation, and with a smile he admitted that behavior by a typical LimeWire user is unlikely, and acknowledged they haven’t really done much in the way of internal research to figure out how to encourage that. So they have enabled legal activity (only for copyrighted works where the owner has licensed voluntarily with LimeWire) yet have done nothing to incentivize that legal activity, or more importantly disincentivize the theft.

Mr. Searle held out another olive branch to copyright owners. He discussed his plan, which I’ve heard him mention at other DCIA fora, to sell keywords for search terms and place ads by those (anyone could purchase it, say Coca-Cola or Best Buy). Under Mr. Searle’s scenario, every time someone clicked on the ad that came up in the search results (clearly delineated as an ad), the advertiser would pay and LimeWire and the copyright owner associated with that search result would be paid. Note, again this only applies to a copyright owner that consents to participate; this would essentially mean the copyright owner was legally consenting to having their works distributed on LimeWire without any other form of compensation.

I ran some hypothetical numbers with Mr. Searle on this, because he said it could be a billion-dollar enterprise. He told me a rate of 65 cents per click was not unreasonable, so I said let’s pretend advertisers were lining up to pay that to LimeWire. I suggested the copyright owner would get a third, and he said he’d like to see it higher than that, so I thanked him and said we’d give the copyright owner half of the 65 cents per click. I then said let’s say that 20% of searches result in a click-through. He was honest and was quick to say that the estimate was likely high, but we stuck with it.

Doing a little math, it was soon clear that, assuming each search led to a download (and why would you search if not intending to download?) a copyright owner would earn 6.5 cents per LimeWire download. And note Mr. Searle himself said my hypothetical example was likely overly generous.

Why is this a good business model? By participating in this copyright owners are essentially authorizing trading of files without any compensation directly linked to the work. This would completely cannibalize all other business models (who cares if Apple will no longer use DRM if you still have to pay 99 cents for a song?), and essentially leave copyright owners without any rights to protect.

To be fair to Mr. Searle, in our discussion he did seem sincere in his desire to see copyright owners compensated. But this is the same thing I see in the key figures at EFF, Public Knowledge and Digital Freedom. I believe they are good people who want to see artists compensated. But they are comfortable at times having those artists sacrifice some of their rights, without the artists themselves consenting to such a sacrifice, to see it happen. That’s where I must differ.

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This entry was posted on Wednesday, January 7th, 2009 at 8:03 pm by Patrick Ross and is filed under advertising, copyright opponents, creators, licensing, market forces, p2p. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.