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Dustin Hoffman and Robert Redford investigate Watergate in All The President's Men. The Washington Post is one of many media companies losing money for their work through the internet. Photograph: Ronald GrantFor most of the 80s and 90s, NBC dominated US television: Miami Vice, The Cosby Show, Cheers, Seinfeld, Friends. The network earned its ratings by pushing boundaries – Miami Vice stylised the police drama, while Hill Street Blues gave it gritty realism. These shows also brought in big money – NBC was once one of the most profitable divisions of General Electric. But when the parent company was acquired by Comcast this year, the deal reportedly gave the network a value of zero.
NBC isn't the only major media business that has fallen on hard times. EMI, home of the Beatles and Pink Floyd, has trimmed its roster and cut thousands of jobs. The Washington Post, which set a high-water mark for US journalism with its Watergate reporting, has reduced its newsroom staff, closed its national bureaux, and declared: "We are not a national news organisation of record." MGM, with its roaring lion logo, was recently acquired for less than half its 2005 value.
All of these companies faced the same problem: they weren't collecting enough of the revenue being generated by their work. The public hasn't lost its appetite for television, journalism or film; shows, articles and movies reach more consumers than ever online. The problem is that, although the internet has expanded the audience for media, it has all but destroyed the market for it.
Over the past decade, much of the value created by music, films, and newspapers has benefited other companies – pirates and respected technology firms alike. The Pirate Bay website made money by illegally offering major-label albums, even as music sales declined to less than half of what they were 10 years ago. YouTube used clips from shows such as NBC's Saturday Night Live to build a business that Google bought for $1.65bn. And the Huffington Post became one of the most popular news sites online largely by rewriting newspaper articles. This isn't the inevitable result of technology. Traditionally, the companies that invested in music and film also controlled their distribution – EMI, for example, owned recording studios, pressing plants, and the infrastructure that delivered CDs to stores. Piracy was always a nuisance, but never a serious threat. The same was true of other media businesses: the easiest place to get a newspaper story was from a newspaper.
The internet changed all this, not because it enables the fast transmission of digital data but because the regulations that enable technology companies to evade responsibility for their business models have created a broken market. Scores of sites now offer music, while hundreds of others summarise news. Part of the problem is rampant piracy – unauthorised distribution that doesn't benefit creators or the companies that invest in them. It also puts pressure on media companies to accept online distribution deals that don't cover their costs.
But the underlying issue is that creators and distributors now have opposing interests. Companies such as Google and Apple don't care that much about selling media, since they make their money in other ways – on advertising in the first case, and gadgets in the second. Google just wants to help consumers find the song or show they're looking for, whether it's a legal download or not, while Apple has an interest in pushing down the price of music to make its products more useful. And this dynamic doesn't only hurt media conglomerates – it creates problems for independent artists and companies of every size.
Technology companies often promote the idea that "information wants to be free", as technologist Stewart Brand said, because it's so cheap to deliver. Indeed, one of the most exciting aspects of the internet is the way it has all but eliminated distribution costs – a digital movie can be sent from Hollywood to Hong Kong for pennies. Some pundits even suggest the price of media will inevitably fall to that level.
It's hard to imagine how that would happen, simply because the internet hasn't had nearly as much effect on the process of making movies. The same film that costs pennies to send across the world might cost $150m to make. "That tension will not go away," Brand predicted in 1984. "It leads to wrenching debate about price, copyright, 'intellectual property' [and] the moral rightness of casual distribution."
Since a college student created Napster in 1999, technology companies have framed this conflict as one that pits media executives against tech-savvy consumers. But the real fight is between media executives and technology investors – it's worth remembering that Napster received money from a hedge fund – who want to use the media to build their businesses. Behind the moral debate that Brand presciently predicted is a clash of opposing economic interests. Technology executives aren't exactly shedding tears for companies such as EMI, saying they just can't compete online. But much of the competition EMI are up against isn't the kind to encourage, because it won't lead to better products. The Pirate Bay never tried to release better music than EMI – it just distributed the same music in a way that didn't provide any compensation for its creators. Similarly, the Huffington Post doesn't compete with other newspapers for stories – it just summarises news other papers have already reported. Legally or not, the companies essentially outsource their costs. In economic terms, they're getting a "free ride".
This benefits consumers, who can see, read, and hear what they want for less money. But free riding is considered an economic problem for a reason. Over the long-term, media companies starved of revenue won't be able to invest as much in artists. Television networks are already under pressure to replace dramas with reality shows and newspapers are leaving areas uncovered as reporting numbers are reduced. Perhaps worst of all, the difficulty of making money on original work is curtailing the kind of innovation promised by the internet. Instead of investing in technology to tell stories in new ways, online news executives are all pursuing "crowdsourcing" because it cuts costs.
It seems obvious, but an information economy needs a functioning market for information. Traditionally, that market was created by copyright, but those laws haven't been enforced effectively online. This helps companies such as YouTube build businesses on the backs of creative professionals.
Certainly, copyright laws need to be updated for the digital age. Many reformers say they favour protection, but view any attempt to enforce it as unacceptable. This doesn't make sense: a market can't be based on voluntary payments, and laws don't work if they can't be enforced. There needs to be some penalty for illegal downloading, although slowing the access speed of a lawbreaker makes more sense than cutting their account entirely. By the same token, why should internet users be allowed to access sites that clearly – and that last word is important – violate UK law? If the UK simply declines to enforce its laws online, it will leave many of its businesses vulnerable as the internet becomes more important to commerce in the years ahead.
As pressure builds to enforce copyright law online, technology companies and the activists they support have started to argue that any attempt to block pirate sites will "break the internet", as though it were an iPhone teetering on the edge of a table. The truth is that the internet is broken already: it's simply too chaotic to provide the infrastructure for a 21st-century economy. This has to change, before newspapers and film suffer declines like that of the music industry. Technology companies have long lectured creators on the need to adapt to a changing changing digital world. It would be a shame if they couldn't heed their own advice.
Robert Levine is the author of Free Ride: How the Internet is Destroying the Culture Business and How the Culture Business can Fight Back (Bodley Head)
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