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The death of copyright, to paraphrase Mark Twain, has been greatly exaggerated.

With the advent and subsequent increasing pervasiveness of the Internet, micro-infringements of copyright, especially when they pertain to artistic works like music and film, have been rampant. However, this activity in fact inspired micro-payments, a revenue model that, while in stark contrast to those formerly in place, actually stands to support a revival for copyright and a new business model for copyright holders.

Two myths of copyright law are that:
-piracy is rampant to the point of killing the business of all content creators; and
-there is an inexorable trend for all content to be free and no one will pay for anything online.

The music industry is fond of telling us that revenue in the music industry is down quite dramatically. But, so too are the costs of distribution: $9.99 for an album on iTunes is likely the gross margin equivalent for the content creation industry standard of $20 for a CD at HMV.

With no tangible media (the CD) online, there are no costs for packaging, shipping, stocking, shrinkage or returns, and no capital is tied up in inventory. Accordingly, while a 50 percent reduction in revenues would be dramatic for the music industry, it is not clear that it will be fatal to the recording industry.

The truth is that for the consumer, downloading songs is a better distribution model for acquiring music legitimately than purchasing tangible media like CDs at a store. The consumer experiences more choice, more flexibility in purchasing and can purchase anywhere at any time.

Yet the music industry was shockingly late to offer consumers a legitimate, user-friendly way to buy online, and it is possible that without the prodding of Apple, the industry would have resisted much longer. iTunes was finally launched in 2003 and before iTunes, there really was no legitimate way for most consumers to buy music online.

In the brief time since its launch, iTunes has now become the leading music vendor ahead of all conventional outlets, and it shows no signs of slowing dramatically. According to Apple’s 2008 Annual Report, its revenue grew 34 percent in 2008.

Piracy is not the financial equivalent of shoplifting: It may or may not result in lost revenue, but it does not result in increased costs. Thus, even if piracy is rampant, the success of iTunes confirms that if you provide an accessible, easy to use and reliable way to buy licensed music at a fair price, a great many consumers will pay.

The “everything will be free” argument is based on a misconception arising from the fact that some things, that previously were costly, are now free to the consumer of that service. The reality is much more subtle, and much more interesting. What has changed is that the marginal cost of acquiring and storing data and making it searchable has fallen dramatically online from what was possible before.

As a direct result of this drop in price;
-many consumers have discovered that they prefer certain online services, especially ones that depend on searching for specific items through reams of data; and
-many advertisers have discovered that they can advertise more effectively to their target market online than elsewhere, when they take advantage of highly targeted, search-dependent advertising.

The cost of acquiring, storing and searching data has fallen so low that frequently it can be provided for free to the end user and cross-subsidized by revenue from advertisers targeting those end users. An industry that is clearly facing the full force of these changes is the local newspaper business. Local newspapers have experienced an unprecedented drop in advertising, especially classified advertising.

The trouble for newspapers is that for both advertisers and readers, online ads are in many respects better than paper — easier to post, easier to search and more durable. Further, cross-subsidization has accentuated this difference, by enabling many advertisers to post online classifieds for free. There is simply no way for local newspapers with high production and distribution costs to compete with this. Ironically, this is often cast as the “death of local news,” and it may be, but local news was itself cross-subsidized by classified advertising in just the same manner that much online classified is now cross-subsidized by a subset of ads.

The long-term fundamentals for the Yellow Pages, which previously enjoyed a natural monopoly, are poor, as advertising by people like lawyers will inevitably move online. But the cause has absolutely nothing to do with piracy, or with advertising being free.

For instance, lawyers will likely not save a great deal switching from Yellow Pages to online advertising, as they are likely to be the advertisers who pay and thereby cross-subsidize the free services offered to consumers. However, always-on, targeted and search-directed advertising is likely to be more effective for many advertisers, even though it costs the same or more, than geographically constrained print advertising.

For many industries, Google AdWords are simply a more effective way to spend the same advertising dollars than the Yellow Pages.

Many content creators should try to emulate the success of iTunes rather than expect to be rendered obsolete, like local newspapers. A lot of content and information is not improved by free search and cannot be fully cross-subsidized by advertisers benefiting from targeted search.

For providers of this sort of content and information — from The Economist to LexisNexis — they should a) try to maximize the amount of cross-subsidization from advertising, and then b) exploit the lesson of iTunes: Many users are willing to pay if you tailor your offering appropriately. In particular, it is incumbent on you to make it easy for them to find you online, and easy and hassle-free for them to buy small amounts at reasonable cost.

Clients worried about copyright infringement, especially online, often ask their lawyers, “How can I protect my work from being copied without compensation?” The answer is that the search for a method to eliminate all possibility of piracy will fail. As the problem lies not with rights but with enforcement, no amount of fine-tuning of contractual terms will eliminate the risk of infringement.

However, there is an increasingly practical solution to infringement. If the lawyer’s client makes it relatively convenient for prospective customers to purchase a licensed version of the work at a reasonable cost, the revenue lost to infringement will significantly decline.

Neil Milton is the founder of Miltons IP, an Ottawa firm that covers all aspects of Canadian intellectual property law, including patents, industrial designs, trade-marks, copyrights, litigation and IP commercialization and transactions. His practice focuses on of IP transactions and strategies. He is the co-author of the free book, Canadian Intellectual Property Law For Dummies.