This week's lecture is going to look at the commercialisation of the Net. It will begin by setting this process into the wider context of the globalisation of the world economy and the emergence of Castells' 'Network Society'. It is then going to look at some the important economic and cultural changes that have occurred as a result of this emergence such as the increased importance of Intellectual Properties Rights to the Knowledge Economy. It will then consider the commercialisation of the Internet within this cultural context. It will present a case study of the CD-ROM before looking at the emergence of recent commercial phenomena such as access-based pay-to-view systems, file sharing, firm-to firm systems and the dot.coms on the Internet.
The Spanish sociologist, Manuel Castells, has described the present era as being a post-industrial, networking, informational culture. He has coined the expression the Network Society to describe this condition. In doing so he clearly recognises importance of networking as the most important feature of contemporary life. He concludes the first part of his trilogy of works by saying that:
While the networking form of social organisation has existed in other time and spaces, the new information technology paradigm provides the material basis for its pervasive expansion throughout the entire social structure.(Castells 1996 pg 169)
He goes on to argue that;
this networking logic induces a social determination of a higher level than that of the specific social interests expressed through the networks: the power of flows takes precedence over the flows of power. Presence or absence in the network and the dynamics of each network vis-à-vis others are critical sources of domination and change in our society (Castells 1996 pg 169)
It is important to note for our discussion of contemporary cyberculture that Castells based his critical analysis on a huge range of studies ranging from the 1970s to the mid-1990s, a time prior to the mass adoption of the World Wide Web. He is clearly identifying a more long-term cultural phenomena which is not dependent on one particular technology. However, having noted that the Internet must be regarded as the iconic artefact of this emergent new culture.
Castells, and many others have identified a number of important cultural changes that have brought about the rise of the Network Society;
As Castells recognises, the Network Society came into being during an era of great change in the world economy. The important world financial institutions, such as the World Bank (see website details below), The International Monetary Fund (see website details below), and the World Trade Organisation (see website details below), dictated an agenda that supported liberal capitalism, market-based economies and trade. These policies have been regarded as being one of the engines for the 'globalisation' of the world economy.
In particular, these organisations put pressures on national governments to remove barriers to international trade. This meant the removal of import and export tariffs, (i.e. policies designed to protect domestic industries), the removal of laws prohibiting foreign ownership and the deregulation rules governing the trade in shares and bonds. They also encouraged countries to develop infrastructure, such as digital telecommunications systems.
The result was a vast flow of goods, services and capital around the globe. It also supported the rise of vast trans-national corporations with operations in every part of the globe.
One of the features of these flows was the fragmenting of manufacturing and commercial processes, as companies were able to select between different economic opportunities in different parts of the globe (cheap labour etc.) and so optimise profits.
At the same time, computer and telecommunications systems were beginning to be developed to control and administer these vast geographical enterprises. High Finance, in particular, embraced computing and telecommunications to support their need for speed and 24 hour coverage. During the late 1980s trading programs were also introduced to risk-manage and trade positions on the recently automated markets. On many occasions we now see one 24 hour computer system trading with another. Castells has famously described this unsleeping global capitalist system as the 'Automaton'.
As well as Globalisation, there has also been simultaneous move to create 'free trade blocs'. These large geographical area (such as the area covered by the North America Free Trade Agreement - see NAFTA website below) whereby there are little or no economic barriers to the movement of goods and services.
The countries of European Union.(see the European Union website) have taken the integration of their economies even further by establishing a common currency and the European Parliament and Commission to govern many aspects of European law. Significantly one of the policy of the union over the last decade has been to encourage the formation of industrial networks and to create links between companies in different countries of the union. It should also be noted that the EU also administers the Common Agricultural Policy, which actively protects European farmers by giving them production subsidies.
The globalisation of the economy required workforces and management throughout the world to adapt to competitive conditions. In particular, there have been:
The spread of globalisation has not been without its problems. There has been a series of financial crisis (for example in South-east Asia in the late 1990s). There has also been an increase in the inequalities between the rich and the poor in the world. The pro-globalisation camp argue that these are short-term effects, that will disappear in time. Critics of globalisation argue however that the whole process is harmful, to the natural environment and to many societies. Colin Hines, for example argues for a localisation program to reverse the effects of globalisation (see Hines below).
There have also been critics from orthodox economists, who argue that trade liberalisation needs to be supported by other economic measures. The Peruvian economist, Hernando de Soto notes that well enforced property laws are very important for the success of capitalism. As the policy Library note:-
The poor in developing countries often have many assets - shacks, informal businesses. What they lack is formal property rights to their assets. This prevents them from unlocking the true potential of their assets - producing capital (for example, through using them as collateral for borrowing) and connecting them to the formal economy - so that utilities such as gas, water and electricity can be legally piped to them.
Significantly, one of the effects of globalisation and network culture has been to challenge our culture notions of property and ownership ( see the story of MP3 below). In particular, the relationship between property and what is coming to be known as the knowledge-based economy.
It is important to note that economists and businessmen are not the only ones forming global networks. A number of non-government organisations are also developing a global reach. In some cases, such as the International Labour Organisation they are large well-established undertakings with a large membership base. However, some very small organisation such as Banana Link are also able to use the new media, to bring together like-minded individuals from different societies. Banana Link note that their mission is to:
Banana Link aims to alleviate poverty and prevent further environmental degradation in banana exporting communities and to work towards a sustainable banana economy. We aim to achieve this by working co-operatively with partners in Latin America, the Caribbean, West Africa and the Philippines and with a network of European and North American organisations(Banana Link website)
They do all this with a staff of four in the UK.
Organisations responsible for forming international policy such as the Organisation for Economic Co-operation and Development (OECD or G8) encouraged countries to develop knowledge-based economies. These are economies that invest in research and development and create an environment whereby innovative goods and services are developed. The OECD has identified (among other things) higher education, investment in research, investment in people, clear-cut property rights and good networking as key to the development of innovation within an economy. Intellectual Property Rights, however, have proved to be a very complicated issue in the globalised, network society.
Intellectual Property Rights (IPRs), such as the award of a patent for an original invention or the recognition of an author's copyright play an important part in the economists' vision of the knowledge-based economy. They see the legal right to be adequately rewarded for investing in an intellectual activity as essential for giving firms and individuals the incentive and security to invest time and money into creating new ideas, goods and services. In the industrial age, the collection of payment for intellectual property rights was built to the cost of goods in the form of a royalty payment. In the age of access, digital computers and other informational techniques have made it very easy to circumvent these parts of the IPR system. Downloading from the net, photocopying and the sheer scale of the global economy has made effective enforcement very difficult.
The majority of investment in the knowledge economy has been made in Japan, in Western Europe and in the USA. Other countries argue that they can not afford to pay Western 'knowledge taxes' on important goods such as medicines. For example, The Republic of South Africa recently licensed a number of companies to make an anti-AIDS drug. The company that developed the drug complained that the RSA, was infringing on its IPR by not paying its licensing fee. The Government argued in its turn that it only had limited financial resources, and that it needed a cheap drug to treat its people. Under the rules of the WTO the RSA faced a fine and possible trade sanctions for its humanitarian policy.
As we will see later, a similar dispute about the role of IPR in music and video has been sparked by the widespread use of the Internet.
The American economist Jeremy Rifkin has studied recent changes in the US society and has describe it as moving into an Age of Access. This access is based on the notion of a commercial network that allows (or refuses) users to gain access to services. A key part of this Age of Access is the 'weightless' economy of commercial services that are now available over the Internet. Rifkin is concerned that this passes more power into the hands of commercial interests.
I mentioned in an earlier lecture that a number of commentators have argued that a network is free from tradition hierarchical power structures (see John Perry Barlow for example). Rifkin, however, notes that there is a different kind of power being exercised in network society. This is a powerful activity known as 'gate-keeping'. As Rifkin notes:
Gatekeepers refers to the institutions and individuals who determine the rules and conditions of admittance and control who gains access and who is shut out of a network-based society. (Rifkin 2000 pg 178)
It is easy to imagine a situation whereby an individual (or a whole segment of society) is excluded by a commercial gatekeeper on the grounds of their ethnicity, geographical location or wealth. Rifkin warns us that we should be concerned about the unthinking commercialisation of every aspect of out lives.
He concludes that:
New commercial networks need to be balanced with new cultural networks, new virtualexperiences with new real-life experiences (Rifkin 2000 pg 252)
In 1995, Philip Hayward and Geraldine Orrock abstracted their article on music CD-ROMs by noting that:
Over the last five years the CD-ROM has risen to become a prominent new-technology medium and consumer item(Hayward and Orrock pg 61)
The CD-ROM fitted in well with the mass manufacturing and marketing strategies of the commercial music industry, which saw it as the successor technology to the Audio CD. In particular, they thought it was an opportunity to market ancillary copyright material (such as pop music videos) and also a chance to re-market their existing back catalogues.
However, this abstract note was written just before the moment when the Internet became the prominent new technology medium. Even in 1995, it was cleared to the authors that over a five-fifteen year time frame the Internet could be expected to displace CD-ROMs. In a follow-up article in 1997, Ian Czencz and Philip Hayward note that the fledgling CD-ROM industry in Australia was already in crisis. As they note:
It may well be that the 'window of opportunity' ( if it ever existed) has been all but closed ( Czencz and Hayward pg 98)
The CD-ROM is, of course, still a common artefact at this time. Small operations, such as the hypertext publisher Eastgate, found niche markets for their CD-ROM based products. However it is mainly used to disseminate programs and information. It is commonly found as a cover disc on magazines or as a free-give away to advertise Internet services. It is also a common format for software and games ( the computer industry calls the 'shrink wrapped' market.). However, even this capacity the CD-ROM is being challenged by Internet downloads, by the DV format and also by changing models of software production and dissemination (such as freeware and open-source software).
With the rise of 'burning technology most new computers are now sold with a CD-writer disc drive. In doing the CD-ROM has displaced the floppy disc as the dominant medium for backing-up common hard discs. However, DVD writers are also now becoming cheap enough to be fitted on many PCs and it is predicted by some industry analysis that the CD-ROM will be displaced by the DVD in the near future.
One factor that all designers and users have had to consider when using the Internet is download time. Image, audio and movie files are all much larger than a basic html text file and take time to download. As a result most early websites did not contain large audio or video files. With the advent of broadband and new compression techniques this situation is changing rapidly.
Even in the early 1990s many industry pundits predicted that audio compression would change the Internet by facilitating the use of sound. However it was a huge surprise to almost everyone when one audio compression technique, MP3, sparked a hotly contested debate about the future of the music industry, the network society, about Intellectual Property Rights and even the future of capitalism.
MP3 is short for MPEG Audio Layer III, and is an audio compression algorithm that cuts out all the audio information the human ear can not hear. A large MP3 file-sharing community grew up on the Internet centred on the 'Napster' website. The key thing to note is these 'Napster' files were being passed from peer-to-peer without any charges being made. The music industry was very alarmed at the success of this system and described its activities as being 'digital piracy'. They accused these individuals of stealing millions of pounds of copyright fees from them. Eventually the industry resorted to a legal action to close Napster down.
Although Napster, the original peer-to-peer music-sharing site, was silenced by the music industry there are other carrying on along the same lines. Winmx, for example, offer the software to allow peer-to-peer file sharing.
It is important note that there is nothing illegal about MP3. In fact, recently MP3 has become quite mainstream. Most desktop audio players now handle this format and Apple have developed the iPod ( a portable mp3 player).
The music industry has finally come up with a response to the digitisation of music files and formed their own commercial operations to handle music files over the web, for example, 'Music Net' or 'Press Play' (which owned by Sony Music Entertainment and Universal Music Group). These charge a small fee, and allow you download the official version of the track or album you have selected. The issues of ownership and access still remain, however. In particular the importance of Intellectual Property Rights to the music industry. All new releases of digitised music (CD and download) contain anti-copy software that has been embedded in the audio files in an attempt to retain control of access to the product.
Similar issues face the video industry, but on a grander scale as a Hollywood film production is a large economic undertaking.
The costs and receipts of some blockbuster films are huge. For example, The Lord of the Rings: The Fellowship of the Ring, was released December 19, 2001 and was thought to have cost about $400 million to make. It earnt about about $900 million world wide in just under one year (see Lord of the Rings website for details).
The traditional revenue stream for a large film is firstly from box-office receipts and followed by sale and rental of DVD and VHS for use in the home. It has been recognised by the film industry that this income-stream model will be challenged by the spread of broad band and video downloading. Unlike the music industry, the movie industry has tried to work with the new technology to create a new revenue stream for their products.
In 2002 Sony Pictures Entertainment, Universal Studios, Paramount Pictures, Metro-Goldwyn-Mayer and Warner Bros. Got together a created the download service Movielink. Movielink offers individual titles for $1.99 to $4.99. The compressed files average about 500 megabytes in size and take about an hour to download with a high-speed DSL or cable modem connection. As Rifkin predicted in the Age of Access, the access to the service has been restricted by the gatekeepers and it is not yet available outside the USA ( the software has a 'geo filter' built into it).
The films can be watched using media players from RealNetworks and Microsoft. The full-screen quality is roughly equivalent to that of a VHS tape, but suffers as the image is enlarged. Viewers can pause, fast forward and rewind the films. A small program called Movielink Manager; tracks downloaded files and how long a user has to watch them (you can't pass them peer-to-peer).
The Commercialisation of the Net: The Weighty Economy
As well as being a mechanism for delivering 'weightless' electronic goods the Internet has also been used by companies to deliver more traditional goods and services. Some of the companies carrying out these activities are traditional companies that have adopted the new technology such as the retailer Waitrose.com (the website of the John Lewis supermarket chain). However, the last four years has also seen a number of new start-up companies that are solely based around the Internet. Companies carrying out this kind of business are often described as dot.com (after the end of their URL).
Banana Link is available on http://www.bananalink.org.uk/
British Broadcasting Corporation (2000) Making it Big Series: Inside Dot Coms Broadcast on 6 June 2000.(40 minutes).
Castells, Manuel (1996) The Rise of the Network Society Oxford and Massachusetts Blackwell
Cinema Now is available at http://www.cinemanow.com/
Czencz, Ian and Hayward, Philip (1997)'Calling the Tune; CD-ROMs and the Australian Music Industry 1995-6' in Convergence; The Journal of Research into New Media Technologies Volume3 Number 1 Spring 1997
de Soto. Hernando .(2000) The mystery of capital. why capitalism triumphs in the West and fails everywhere else. London. Bantam.
European Union is available on http://europa.eu.int/
Giddens, Anthony and Hutton, Will eds (2000) On the edge; living with global capitalism .London Jonathan Cape
Glencore AG is available on http://www.glencore.ch/
Hayward, Philip and Orrock, Geraldine (1995)'Window of Opportunity: CD-ROMs, The International
Hines, Colin Localization: A Global Manifesto London and Sterling, VA Earthscan
Music Industry and Early Australian Initiatives' in Convergence; The Journal of Research into New Media Technologies Volume 1 Number 1 Spring 1995
Music Net is available on http://www.musicnet.com
International Labour Organisation is available on http://www.ilo.org/
International Monetary Fund is available on http://www.imf.org/
Lord of the Rings is available on http://www.fellowshipofthering.com/
New York Stock Exchange is available on http://www.nyse.com/
Merryl Lynch is available on http://www.ml.com/
Movielink is available at http://www.movielink.com/
Organisation for Economic Co-operation and Development is available on http://www.oecd.org
Policy Library is available on http://www.policylibrary.com/
Rifkin, Jeremy (2000) The Age of Access: how the shift from ownership to access is transforming modern life London Penguin
Winmx is available at http://www.winmx.com/index.html
World Bank is available on http://www.worldbank.org/
World Trade Organisation is available on http://www.wto.org/