Prof. Peter S. Menell, University of California at Berkeley School of Law
Director, Berkeley Center for Law & Technology
May 13, 2011

A new digital music era has arrived.  Amazon’s Cloud Drive web storage application introduced on March 29th, followed last week by the announcement of Google’s Music Beta storage locker system, ushers in a new era in music distribution.  Both services enable consumers to upload their music collections to web servers from which they can stream their files to any computer or Android device.  Neither service relies upon licenses from music copyright owners.  Industry analysts predict that Apple will announce a cloud-based service for digital music soon.  The contours of that service, and the extent to which it is licensed by music copyright owners, remain to be seen.

While some analysts see these new services as breakthroughs, there is a sense in which the “innovation” of these services lies more in their creative circumvention of licensing content than in technological advance.  These new services are obvious and inevitable by-products of advances in computer storage and network capacity and contribute little in the way of technological spark.  Server space is now so inexpensive that Amazon and Google are willing to give it away in the hopes of generating income from other aspects of their online businesses – principally sales of products (in Amazon’s case) and advertising (in Google’s case).  Apple will likely unveil a cloud-based service that seeks to benefit its primary profit center – the sale of devices.  This approach to music distribution joins the ranks of other technological loss leaders –inkjet printers, video game consoles, and mobile phones.

In the short run, such vibrant competition in cloud storage capacity will benefit consumers.   Who wouldn’t want free storage capacity and greater accessibility to their music collections?  At another level, however, this shift toward massive cloud redundancy seems wasteful.  Why should Lady Gaga’s “Poker Face,” Fleetwood Mac’s “Go Your Own Way,” or John Lennon’s “Imagine” be stored on millions of separate servers?  And at a third level, what are the broader and longer term ramifications of the shift to cloud storage for promoting progress in the arts?

Therein lies the digital music cloud dilemma.  Intra- and inter-industry competition in conjunction with copyright law’s indirect liability standards have produced a market equilibrium in which three critical sets of players – technology companies, music copyright owners, and Internet users/music fans – drive technological and market evolution while a fourth critical constituency (song writers and recording artists) sees the ability to support its craft greatly diminished.

This fragmented marketplace wastes expenditures on server farms, burdens network functioning, locks consumers into particular cloud storage vendors, and perhaps most troublingly, further unravels any real marketplace connection between music creators and those who value their creativity.  Fans can easily upload music files – whether obtained legally or illegally – to the cloud.  Vendors profit from the sales of goods, advertising, and devices and are insulated from responsibility for hosting unauthorized content.  Copyright owners bemoan the unenforceability of their rights.  And creators rethink their career options.

This equilibrium reveals the perhaps intractable challenges of the digital age.  Technology companies have little choice but to develop business models that enable them to compete with “free.”  As we learned in the earlier cloud music era – peer-to-peer file sharing – many music fans are inclined to obtain their music illegally given the relatively low risk of enforcement.  Were Amazon to cut a deal with music copyright owners, they would have risked being undercut by Google.

Thus, it is not surprising that copyright owners and technology companies failed to reach any compromise in licensing cloud-based services: the net result being an inefficient cloud architecture that places infringement immunity above technological efficiency and user functionality.  Amazon and Google followed Lady Gaga and Fleetwood Mac – they played their “poker face” and went “their own way.”  Copyright law provides little leverage for resisting a technology – cloud storage – that is capable of substantial non-infringing use.

That leaves one more major player: Apple.  Apple’s iTunes Store in conjunction with Apple’s array of compelling devices made some in-roads among fans inclined toward respecting the law, convenience, and/or fairly compensating creators.  Although this business did not reverse the precipitous decline in music sales, it created at least one significant marketplace for digital music goods.  It remains to be seen whether Apple will attempt another strategy that promises a meaningful revenue source for music creators.  It will not be easy having to do so while competing with the new “free” – Amazon’s Cloud Drive and Google’s Music Beta.

Let’s imagine an alternative, technologically feasible digital world in which consumers have ubiquitous access to the full range of music through any device and over any network for a fair price – say $10 per month (about 33 cents per day).  As new music is released, consumers could seamlessly add those songs to their playlists and promote them to friends.  Imagine further that much of that price made its way back to music creators, reinvigorating incentives to invest in developing musical talent and building careers.  Songwriters and recording artists would earn a return to their work that is at least roughly proportional to the number of times their songs are streamed through this truly celestial jukebox.  They would not have to rely on overreaching 360 deals and compromising their integrity through product placements.

That alternative cannot happen in the current legal/market eco-system.  But three types of legal/political shifts could potentially move the market equilibrium in this direction: (1) plugging the gaping holes in digital copyright enforcement; (2) re-balancing indirect liability standards; or (3) scrapping the music copyright system as we know it and establishing a levy system.  Unfortunately, each of these solutions generates deep intra- and inter-industry conflict and could produce adverse effects on competition and technological innovation.  Perhaps the emerging cloud services are the best of the highly imperfect feasible options.  But thanks to John Lennon, we are inspired to “Imagine.”