A trendy academic proposal that would allow computer users to make unlimited takings of copyrighted content is compulsory licensing. Under a number of proposals, users may freely download music, movies, etc. through P2P networks of various natures. Rights owners would presumably be compensated for their losses through levies collected on internet subscriptions, computers, storage media, and other services and hardware that have the potential to be used with infringing activity. Levy revenues so collected would be distributed to copyright owners per values assigned by a regulatory agency.

Compulsory licensing presents four problems. First, the levies would be assessed upon individual equipment purchasers and Internet subscribers regardless of their actual use of P2P technology and level of copyright infringement. For the primary benefit of media companies, the majority of users would be harmed by taxation that may stifle network buildout and upgrade.

Second, the regulatory panel empowered to establish prices would face the daunting task of parsing out a fixed pot of revenues to contending uses and determining the relative worth of each. HOW TO DO?? As new forms of content come to market, the panel would need to consider the relative worth of a one hundred page novel, a two hour movie, a three minute song, a 4 x 7 photograph, and a five frame comic strip. In addition to comparing unrelated products, the panel would also need to decide the value of different lengths; i.e., how much more is a full page comic book worth compared to the five box strip, how much more a symphony than a song. Problems yet compound even more with multimedia works that combine different media, such as photography, prose, and music.

Third, while immediate transaction costs may diminish, the long-run administration costs for setting and revising the license terms will be considerable. Just imagine the scene. As consumers download increasing amounts of content, administrators and legislators reconvene Congressional hearings annually just to adjust the tax instrument in order to keep up with demand. In public utility regulation, the resulting outcome was known as “pancaking”, which was administratively burdensome and harmful to the electric utilities whose investments depended upon adequate revenue recovery.

Furthermore, in the foreseeable event that content downloading outgrows levy dollars, compensation per individual work would necessary diminish. Fighting for a revenue pot that bears no direct relation to sales of underlying content, the uncertain nexus between effort and reward evidently harms the incentive of a content provider to invest the resources needed to break a new act, produce a new movie, or publish a new novel.

Finally, free takings are more harmful to the market than simple measures of sales displacement may or may not confirm. The effective support of P2P through fees and taxes paid by users and non-users alike will undercut other content of possibly higher quality and greater functionality. Most directly harmed with be either “paid for” download services and interactive streaming that enable sampling. Affected characteristics of competitive product may include superior sound quality, additional artist information and recommendations, and playlist sharing. With a competing P2P technology effectively subsidized by government revenues, the incentive to initiate and develop new services will be reduced. The outcome will lock in the P2P model without regard to the eventual efficiency of other providers.