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Why Google tax won’t fix France’s ‘creative deficit’

Out-Law Analysis | 19 Jan 2010 | 1:28 pm | 3 min. read

OPINION: When worlds turn upside down, crazy things happen. And so it is in France, where the Government's response to the information revolution appears to be to chide Google for damaging French culture by driving down the cost of advertising.

That's right, president Nicolas Sarkozy is considering giving his backing to a report which condemns Google's creation of a relatively cheap, relatively well-targeted, relatively accessible advertising medium which broke the stranglehold that local and national papers and TV companies had over advertising.

According to French media reports, the argument is based on the assumption that reduced advertising fees equate to reduced income for web publishers, which in turn strangles French creative endeavour.

The founding basis of this view is that the world of commerce owes certain kinds of business – newspaper and book publishers, record labels – a living, and that if that living is threatened the market must be re-shaped to suit those companies.

For a centre-right free marketeer like Sarkozy, of course, this should be dismissed as wrong-headed nonsense. He espouses the benefits of a market-based economy and society where it should be the job of companies to adapt to the marketplace. Under that political and economic philosophy, the failure of any company to adapt should be seen as regrettable but inevitable collateral damage.

But in the report, which was produced by three men including a record label boss with a business relationship with Sarkozy's wife, a protection mechanism for record companies is built in.

It suggests that companies that make a lot of money from online advertising, such as Google, should pay an extra one or two percent tax. That money should then subsidise a 'music card' that young people are encouraged to buy and use at online music stores.

Such a plan would run counter to the political philosophy of any self-respecting free marketeer, but even France's centre-right has always favoured more state intervention than fellow travellers in the anglo-saxon and American worlds.

So it may be that such significant state intervention on behalf of private business can be squared with a very Gallic kind of capitalism. But does it make practical sense?

As a way of trying to engage traditional businesses more deeply with the digital economy, perhaps. But why is that even necessary? The plan's convolutions and contortions just highlight the elegant simplicity of the music business model for which a whole generation of consumers is waiting.

This is a business model that would stimulate creativity, that would reduce the amount young people pay for music and that would not require the state to tax the likes of Google to pay the likes of EMI or Universal.

Why, in short, are we still waiting for artists to record their own music and sell it directly through digital networks that already exist?

Traditionally, record labels exist to bankroll recording costs and organise the distribution of physical products. Neither of these functions is necessary any more.

Professional-grade recording technology is so cheap and ubiquitous that most albums can realistically be made for a few thousand pounds. Many cost hundreds of times that, but few, if any, need to.

Distribution, once a black art demanding high expertise and deep pockets, should now be no more complex than the emailing of sound files to digital distributors.

Promotion still requires investment and if an artist wants to make sure they have the best chance of a hit they will still need to buy their way onto billboards, TV ads and street campaigns. But that can be a decision each artist makes based on their own business plan: there is no inherent quality of a record company that is an essential part of that. Every other small business in the world makes its own advertising decisions, and recording artists need not be any different.

How would we, as consumers, find the music that didn't spend hundreds of thousands of pounds on promotion? The same way we do now. Music journalism has thrived online and with recommendation and try-out services such as Pandora and Spotify growing in popularity, consumers have a better chance than ever of finding and buying new music.

The economic benefits for consumers and artists are huge. Only a pound or two of a £10 album, at the very most, reaches an artist's pockets. Selling direct, the artists could charge half of the current album price and still make more money than with a major label.

This would stimulate exactly the kind of music consumption and production that Sarkozy's government claims to want. With one exception: the eight or nine pounds per record currently swallowed up by the record labels would disappear.

A report part-written by a label exec was never going to recommend that, but Sarkozy and his cultural advisors should be able to see past vested interests and find a way genuinely to promote French musical culture and look after the interests of artists.

Can an era in which artists sell albums direct to the public for just a few pounds through digital networks unrestricted by the need to hold inventory or maintain a network of shops be that far away? Is there any real reason why we cannot start buying direct to truly benefit the artists that have been so ill-served by industry lobby groups claiming to represent them?

There is no reason why this shouldn't be the present, never mind the future, but deals such as that proposed by Sarkozy's industry committee make it feel further away than ever.

By Kim Walker, a partner with Pinsent Masons, the law firm behind OUT-LAW.COM, who specialises in intellectual property law.