The Government's proposed copyright laws miss the mark. If there is no provable damage to file sharing and if these laws could destroy the ability of markets to send price signals, then we need a better solution, writes Mark Pesce.

As we digest the changes to copyright law recommended by Attorney-General George Brandis and Communications Minister Malcolm Turnbull, it becomes increasingly difficult to understand how these proposals could originate with a party whose name invokes political values centring on individual self-determination and the sanctity of free markets.

Before we make any decisions on any changes to these laws, four questions must be answered.

Where is the damage?

A widespread belief holds that tightening copyright laws will lead to a recovery of billions of dollars of revenue currently lost to the entertainment industry through file sharing. The Communications Minister recently repeated this belief in an interview on ABC radio.

The economic damages incurred by file sharing would seem to be more than sufficient justification for changes in the law.

Yet these "losses" have never stood up under scrutiny. Hollywood claims billions of dollars a year they would have received, had file sharing not impacted their ability to sell tickets and DVDs, but they have never been able to prove significant impact to their bottom lines. Indeed, Hollywood makes more money now than before file sharing became commonplace, so you could argue that file sharing has actually been good for bottom lines.

Dr. Koleman Strumpf, a professor of economics at the University of Kansas, recently published the findings of his own research into the losses incurred in Hollywood because of file sharing. After studying 150 of the most popular films from 2003-2009, Strumpf found that at most the impact of file sharing was three-tenths of one percent of a film's first month box office revenue.

If so little damage can be proven, why should we change our copyright laws? In Australia, that comes to just a few million dollars a year. Not a lot of damage, and not a lot of revenue lost.

Do these laws improve the efficiency of the market?

A free market offers consumers the ability to make choices that send price signals to businesses. When consumers believe a business is not offering value for money, customers switch their business to competitors.

Copyright is a notable exception to the free market, permitting a form of monopoly. When HBO took Game of Thrones off of Apple's iTunes, and licensed it exclusively to Foxtel, consumers had no choice but to subscribe to Foxtel, or wait for the DVD release of the series.

Like it or not, file sharing is a competitive, audience-driven channel for the distribution of content, a price signal to both HBO and Foxtel that consumers are not prepared to accept the deal on offer.

Consumers will buy content, if they feel they're getting value for money. The success of Netflix in the United States proves conclusively that even audiences once believed "lost" to file sharing can be lured back with a fair deal.

Legislating against price signals denies both HBO and Foxtel the kind of market information they need when making business decisions. It's not good for consumers, but it's even worse, in the long run, for content providers.

Do these laws improve the business environment?

Although new ground for Australia, similar laws have been trialled throughout the world, including the United States. Last month, the American Bar Association advised the entertainment industry to steer away from suing individual file sharers - an approach the Communications Minister has recently advocated - as ill-advised, expensive, and not particularly effective.

In particular, the ABA pointed to the ill-will that can be generated by any firm aggressively targeting file-sharers. Metallica, one of the most profitable bands in rock history, suffered huge reputational damage when it filed lawsuits to prevent fans from sharing its music.

Do Disney, HBO or Village Roadshow - companies identified strongly with entertainment - want to develop reputations as nasty, litigious, greedy businesses? That's the kind of reputation that sticks to a firm for a long time. Just ask Metallica. Nearly 15 years after they sued Napster, their fans are still angry about it.

Can this be legislated effectively?

If entertainment companies take file sharing as seriously as they claim, the solution is obvious: they need to stop distributing their media in digital formats. It is almost impossible to share a movie printed onto 35mm film. Only when digitised and pressed onto a DVD can it be copied and shared effortlessly. Equally, if HBO restricted performances of Game of Thrones to theatres, we'd see very little sharing.

HBO's business model depends on broadcasting Game of Thrones via cable and broadcast networks, just as Disney's depends on selling lots of DVDs. Mass-market entertainment has become vastly more profitable in the era of digital distribution, because it's much easier to get a movie or TV series to a global audience.

Bits are easy to copy, bringing big advantages to business, but it's not possible to write laws that magically allow businesses to make the most of those advantages while simultaneously removing the disadvantages of audiences copying and sharing those bits. They're two sides of the same coin. If businesses want to realise the benefits of digital distribution, they must accept the downside as a cost of doing business.

If there is no provable damage, if these laws could destroy the ability of markets to send price signals, perhaps even damage the businesses themselves, and if, like Canute, these laws can not turn back the tide of file sharing, Brandis and Turnbull's proposals make a dog's breakfast of classical liberalism.

Instead, this Government should look for ways to encourage open markets for copyright, engaging Australian audiences in conversation with content providers in a search for solutions. That search can never begin in these proposed laws.

Mark Pesce is the Honorary Associate in the Digital Cultures Program at the University of Sydney. His website is at www.markpesce.com. View his full profile here.