A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy

from the misunderstanding-the-premise dept

Took a week off from my series concerning the economics of abundance, but wanted to jump right back into it this week. I started out with a discussion on how the number zero seems to screw up otherwise sensible people when it comes to economics, and followed that up with a post on the economics of abundance is not a moral issue. I had planned to move on to more about the actual economics, but the responses have delayed that for at least a little while.

Some of the complaints about the last piece highlighted one aspect that perhaps I had not made clear: unauthorized downloads, "piracy" or "stealing content" (if you want to use those phrases) have almost nothing to do with this discussion. People criticizing the posts on this topic keep going back to the idea that this is all some big defense of such practices when nothing is further from the truth. This series is very much written from the perspective of the producer of content, not the consumer. That is, we're trying to make clear the basic economics so that the producer of the content can use that to his or her advantage. So, the lack of scarcity we're talking about is based on the fundamental nature of the content: that it has zero marginal cost to make a new copy once the original is made. That's a simple fact that has nothing to do with whether or not people are making unauthorized copies. That nature of the content is fundamental. So everything that we're saying here applies just as much to content if there were no "piracy" at all. If there were an industry where there was a lack of scarcity, but no piracy, the information here would apply just the same.

Now, I do say "almost" nothing to do with piracy. The way that unauthorized copies play into this discussion is in the realization that they're a fact of the marketplace. That is, they're helping to accelerate the impact of that lack of scarcity, and only helps to highlight why the producers of content need to pay attention and make changes sooner, rather than later. Many of the recent actions taken by organizations like the RIAA, the MPAA and the BSA represent a fundamental misunderstanding of this fact. They believe two things that are absolutely wrong. First, that the lack of scarcity is only due to piracy and, second, that there's some way to really stop piracy. Both of these things are wrong. The lack of scarcity is due to the fact that the content has zero marginal cost -- which is true no matter what, and unauthorized copies are always going to be an issue. So, based on that, why not try to understand what happens when you have a lack of scarcity and how to profit from it, rather than fighting the obvious trend?


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    Anonymous Coward, Nov 29th, 2006 @ 1:09pm

    i like this post. i've seen many people blast you for "encouraging" or "justifying" illegal acts, such as piracy.

    however, it is far from the true. i hope everyone who reads this will see the difference between downloading an illegal mp3 from the fact that another mp3 can be made for "nothing" (remember, servers, computers and what not cost money to make/run) that's the one fact i would argue you about. it's not that it has zero marginal cost, it has a marginal cost that aproaches zero very rapidly (kinda like the limit of 1/x as x goes to infinity)

    all in all, thank you.

     

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    mmrtnt (profile), Nov 29th, 2006 @ 1:13pm

    Can't Help Myself

    So, based on that, why not try to understand what happens when you have a lack of scarcity and how to profit from it, rather than fighting the obvious trend?

    I so agree, that I'm forced to repeat myself, just for the pure hell of it.

    bottled... water

    :)

    MjM

     

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      Anonymous Coward, Apr 19th, 2011 @ 12:49am

      Re: Can't Help Myself

      Bottle water isn't a good comparison. Bottled water is often a health choice; it is safer and healthier to drink it rather than water from the tap in almost every country in the world.

      Also, when driving through the Nevada desert, water is indeed a scarce commodity.

       

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      John Q. Publican, Jan 7th, 2012 @ 10:57am

      Re: Can't Help Myself

      Late to the party here, but: what gave you the impression that there's an abundance of water? The bottled water market in NYC may well be as artificial as the market in diamonds that was created by De Beers; but in a number of places I've been access to bottled water is a survival issue.

       

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    Alex Z, Nov 29th, 2006 @ 1:19pm

    Save imperical data please.....

    My primary issue with this series is it's total lack of empirical data. Anecdotes are helpful, but in the science of economics they almost always lead the observer to the wrong conclusion.

    I am a statistical economist - as you may remember from my comment on your first series article, I studied marginal transaction cost theory. The evidence is on your side, but you need to roll up your sleeves, do a little research, then present it. Let me give you a little help on where to start looking:

    As I stated in my earlier post, there will always be two finite resources in this debate: The size of the consumer's wallet, and the amount of free time a consumer has to spend on any given subject.

    Lets take two goods that have a marginal transaction cost of zero: TV content and Music content.

    Over the last five years, the music industry has compained that music content has taken a financial beating. But, the empirical data easily disproves this. In fact, the amount of total expenditures on music related purchases has gone up over the last 6 years (mp3 players, XM/Sirius equipment, live concerts, mp3 downloads, cable music channels, etc...), as has the amount of free time consumers devote to music related experiences (commuting with mp3 players, portable satellite equipment, etc...). So, while one aspect of the music business has flattened, as a whole it has taken "share" of the consumer wallet and time allocation. This is fairly easy data to find and present, and will quiet many detractors.

    Conversely, Television has lost both consumer wallet share and time allocation, despite the fact it started with zero cost model (again, this is very easy data to find). The primary difference between these two: The ease in which the consumer can choose the channel and time to purchase and use the product.

     

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      Anonymous Coward, Nov 29th, 2006 @ 1:53pm

      Re: Save imperical data please.....

      "Anecdotes are helpful, but in the science of economics they almost always lead the observer to the wrong conclusion."


      Sounds a little anecdotal, got any evidence to back that up?

       

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    Anonymous Coward, Nov 29th, 2006 @ 1:21pm

    Sure... Thats all good...

    But back to the subject of kiddie porn...

    If it's futile for the **AA to fight against the tidal wave of zero distribution costs, then why isn't it futile for canada (and everyone else, including their ISP) to fight against the (supposed) tidal wave of kiddie porn?

    So, based on that, why not try to understand what happens when you have a lack of scarcity and how to profit from it, rather than fighting the obvious trend?

    Sorry if that seems "trollish" but I can't shake the parallel.

     

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      Jamie, Nov 29th, 2006 @ 1:47pm

      Re: Sure... Thats all good...

      I think you got it confused. the zero distribution costs aren't something the **AA can fight against. They are what is futile to fight against. Furthermore, there is no moral or beneficial reason to fight against them. Fighting against them, will not help the **AA, and will actually hurt them.

      What they can fight against is piracy. And they should fight against piracy. No one is arguing that they shouldn't. But at the same time, they need to understand that the same factors that have made piracy so easy and common, have radically changed the marketplace. The **AA need to change their business models to match the market, or they will fail. they cannot continue to blame piracy for their failing business models.

       

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      FH Harris, Jun 20th, 2007 @ 9:57am

      Re: Sure... Thats all good...

      Because while they almost do....

      The **AA does not have the force of the government behind them. Those fighting kiddie do. Just having it or getting it is enough to get you put away. having a song wont. Also they are logging where a lot of the porn came from... Bust a host and then bust everyone who comes to that host.
      The majority want to see the stopping of supposed or real kiddie porn. Not so with music. Kids are being hurt when kp is produced. There is only ecenomic damage (how much?)from dloading music.

       

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      Ryan, Mar 7th, 2008 @ 12:46pm

      Re: Sure... Thats all good...

      The fight against copying kiddie porn is probably futile. Fighting against those producing it, however, could likely be much more productive.

       

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    Justin (profile), Nov 29th, 2006 @ 1:23pm

    Compensation for services.

    Piracy doesn't happen on the internet. Theft can only happen when someone is deprived of a possession. Copying does not fall into this category as it does not remove the original.

    Despite what these industries would have you believe they have never been in the business of selling art. They have always been in the business of selling access to art.

    As an artist (musician) I insist on being paid to create art prior to actually creating it (or through a prior contractual agreement, after the work is completed). I get paid once to create it. After that the world uses it as they will. If I wish to continue getting paid for my art then I must continue to produce it.

    Plagiarism isn't piracy. It is a form of identity theft and as such is a completely separate issue.

    The simple fact of the matter is that we do not rely on these industries to provide access to art as we once did. The viability of their business model has changed. They need to adapt or die.

    The free market makes no guarantees. I do not feel sorry for those who have already amassed vast fortunes nor those little folk who will have to find other jobs. Shit happens.

     

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      jackscrow, Mar 16th, 2007 @ 7:21am

      Re: Compensation for services.

      You must be a sessions musician (if one at all). You are totally ignoring the existence of "intellectual property".

      The artist has a right to control distribution of the art.

      The fact that stealing is becoming easier does not make it right...

      You are rationalizing STEALING. And it's not just information, it is the artist’s work, and in some cases, their livelihood.

      If you are a "musician", as you claim, you know that the "information" on that file you download and copy cost someone thousands of dollars to produce and, more often than not, thousands more to market.

      The artist is the supplier and the art is the product, and the artist has the right to control and make money off his/her creation. The idea that you create something, get paid once and move on is idiotic. Even painters have numbered prints.

      Increasingly the artist and the distributor are the same, so if you up-load or down-load music files, you are not stealing from some faceless corporation, you are stealing from a musician who very likely maxed out his or her credit trying to maintain control of their product.

      The artist or the company that contracts them pays to put the original creation into a format that can be distributed (think about that numbered print). If part of that contract includes royalties, then the distributor has every right to go after thieves.

      If you are a musician you would know what a good producer is worth and how much they charge. How much mastering costs, along with Website SEO and Marketing costs.

      It's my property, I set the asking price, I decide how to access it, and if you access it without paying, it is thievery and I have the right to sue you.

      Even when you buy a CD and burn 10 copies for your friends, you are stealing.

      I don't blame the record companies for suing on behalf of the artists. In fact, I wouldn't blame the artist for hunting the offenders down and beating them senseless.

       

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        FH Harris, Jun 20th, 2007 @ 10:03am

        Re: Re: Compensation for services.

        However the industry is the one that created the perception in its public that music should be available at no cost.

        RADIO never cost when we were kids.... and we were allowed by the courts to make copies.

        Now the copies are of a quality that dont require us to puchase from the manufacturer to get a near perfect quality. Now they want it to become criminal and wonder why people aren't going along with that.

         

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    CMY, Nov 29th, 2006 @ 2:10pm

    What is the actual cost of an unauthorized copy?

    The problem I have with mixing piracy and economics has to do with abundance. The perception with the copyright holder is that every unauthorized copy is a loss of sale that results in a financial loss. When in fact many of these copies are made simply because they are available. This does not guarantee that the lack of that copy would have resulted in revenue.

    Think of the Video Rental Industry.. If a video rental store buys 10 copies of Movie XYZ the screenwriter gets residuals for those ten copies. If each copy is watched by 100 people that is 1000 views and the screenwriter doesnt recieve anymore money.

    If the movie rental industry did not exist how many of those 1000 people would have bought the dvd instead of renting? 100? 10? 5?

    So imagine a teenager who has no money. He/She makes a copy of a CD from a friend. While obviously the consumer of the copy recieves a benefit, Does this cause an actual loss to the copyright holder since it would not have generated revenue if it was not available either?

    Now if person B is shopping for a CD and finds an alternative source in the process I can see that as an actual loss of revenue.

    I understand the stance that piracy contributes to the abundance. However, at the same time I have to believe abundance contributes to piracy .

     

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    Ethan B., Nov 29th, 2006 @ 2:21pm

    Should've said this FIRST

    Mike,

    Once again, these points have been great.

    When you write your book, or influential "white paper" about this, I think it would be wise for you to LEAD by discussing your persepective [from the producer], etc, before hitting peeps with the hard science. That would be a good way to tamp down all these reactionary, uh, reactions.

     

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    saranwrap, Nov 29th, 2006 @ 3:02pm

    Interesting Note

    Kevin Kelly, dude from Wired, also seems to suggest the same ideas that you are proposing. I haven't read this particular book though, so its merely a hunch. Please note I am not claiming anything in the sense of being the first to intiatiate an idea; I'm just trying to grasp the issue further with better arguments and data/evidence therein.

    The website is...
    [http://www.kk.org/newrules/contents.php]

     

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    Alex Hagen, Nov 29th, 2006 @ 3:39pm

    Missing the point again

    I want to put this in a separate post because I don't want to muddy the main points here. Mike, I don't want to insult you, because I like your website and I get interesting news and your opinion is frequently dead on. But you seriously need to step back and try and gain back some objectivity on this issue. The reason why some may think that all of this is a smokescreen for defense of piracy is that you have shown very strong, consistent, and frequently overzealous bias against the entertainment industry and IP laws in general. It seems that no pro-IP law is reasonable to you, and no move the entertainment industry makes is ever exempt from your scorn. This is obviously personal with you, and it is clouding your judgment about what is reasonable and what isn't.

     

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      sceptic, Nov 29th, 2006 @ 3:44pm

      Re: Missing the point again

      Alex, it is obvious that your response is as personal as you claim Mike's comments are. While I don't always agree with his conclusions, your representation of his views on entertainment industry and IP laws undermines only your own point of view, since you apparently have not bothered to actually understand any of those posts.

       

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    Alex Hagen, Nov 29th, 2006 @ 3:54pm

    Missing the point again

    Your attempt to categorize this issue purely in economic terms is blinding you to the real points of this. Yes, the marginal cost of another digital copy is basically zero. So, the marginal cost of producing another pill is also basically zero. The marginal cost of making another book is basically zero. So is making a CD, making a copy of a score, copying your web page, and making a billion other things that patents and copyrights have protected over the years.

    This is a case where pure economics fails us. It is hardly the first. From a pure economics standpoint, monopolies are more efficient, polluting is much more profitable, and cheaper but more dangerous products are acceptable. We have laws that balance out pure economics to gain some other good that we also consider important. We have laws regarding IP precisely because economics alone can not gain us the outcome we desire, just as we have anti-monopoly, pollution, and product safety laws. We give an unfair (by economic terms) advantage to the creator of something because we want to encourage creation. That is why it is written in the constitution:

    "To promote the Progress of Science and useful Arts, by securing for limited Times to Author and Inventors the exclusive Right to their respective Writings and Discoveries"

    The fact that it is digital now changes absolutely nothing. The same laws apply for the same reasons.

     

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      Mike (profile), Nov 29th, 2006 @ 4:12pm

      Re: Missing the point again

      This is a case where pure economics fails us.

      Hmm. No, it doesn't. It only appears fails us if you misunderstand economics -- usually because you don't understand the impact of zero (see earlier post).

      From a pure economics standpoint, monopolies are more efficient, polluting is much more profitable, and cheaper but more dangerous products are acceptable.

      This shows a woeful misunderstanding of economics -- so it's hard for me to take your other points seriously. Monopolies usually are not at all efficient, hence the concept of monopoly rents. And pollution is a negative externality -- which means it has an economic cost. Just because you ignore that cost doesn't mean economics does.

      We have laws regarding IP precisely because economics alone can not gain us the outcome we desire, just as we have anti-monopoly, pollution, and product safety laws.

      Indeed, and if those laws do not create the outcome we desire, then what? The point of these posts is to explain how these laws do not produce the desired impact (and as you can see from other posts here, anti-monopoly laws often have the same problem, and many anti-pollution laws don't correctly deal with the externality issue either -- all due to a lack of understanding of economics).

      We give an unfair (by economic terms) advantage to the creator of something because we want to encourage creation.

      Yup. I agree there. But, the whole point is that these things DO NOT encourage creation in many cases. In fact, there's plenty of evidence that they hinder creation by allowing creators to rest on their laurels.

      The point of gov't intervention is to deal with market failures (as is the case with certain monopolies). The point I'm trying to make is that if there's no market failure, then there's no need for government intervention. It seems pretty clear that the market is providing plenty of incentive to create new content, new products, etc. So, why do we need this *extra* monopoly right?

      Besides, I find it amusing that you first complain that monopolies are bad, but then advocate millions of monopolies handed out by the government. Can you explain that contradiction?

       

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        Alex Hagen, Nov 29th, 2006 @ 4:50pm

        Re: Re: Missing the point again

        "From a pure economics standpoint, monopolies are more efficient, polluting is much more profitable, and cheaper but more dangerous products are acceptable."

        "This shows a woeful misunderstanding of economics"

        Um, perhaps you misunderstand. I am not implying that it is more efficient for the world at large, but they are more efficient for the company. Monopolies gain from advantages in economies of scale and they gain from abnormally higher prices. From a company standpoint, being a monopoly is good. We need laws to stop them because it is bad for society at large.

        "And pollution is a negative externality -- which means it has an economic cost."

        But not to the company doing the polluting. That's the whole point of my argument. Economics alone will not keep that company from polluting, and we need laws to stop them because it is bad for society at large.

        "The point of these posts is to explain how these laws do not produce the desired impact"

        So you agree with the basic premise that these laws exist to counterbalance pure economics to get a desired impact? That would be a start. If the laws do not give the results that we desire, we will of course change them. These laws have worked decently well for 200 years, I think they can be modified to work. Don't you think it is a bit early to throw them all out and start from scratch?

        "Yup. I agree there. But, the whole point is that these things DO NOT encourage creation in many cases. In fact, there's plenty of evidence that they hinder creation by allowing creators to rest on their laurels."

        I agree with you there, at least where patents are concerned. It's harder to make that argument about copyright. But I think that completely giving up on them and finding some mystical other way is way too reactionary.

        "The point of gov't intervention is to deal with market failures (as is the case with certain monopolies). The point I'm trying to make is that if there's no market failure, then there's no need for government intervention."

        Removing IP laws will be a huge market failure, and will destroy entire industries. You know, I await with bated breath your ideas on how musicians, programmers, or drug companies are going to make money in a IP-less world, or what their motivation to create is going to be.

        "Besides, I find it amusing that you first complain that monopolies are bad, but then advocate millions of monopolies handed out by the government. Can you explain that contradiction?"

        Oh come on, you are just being silly now. Yeah sure, there is a huge contradiction between being for the breakup of AT&T and being against the ability for Justin Timberlake to control what happens to his music. Please.

         

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          Mike (profile), Nov 29th, 2006 @ 5:34pm

          Re: Re: Re: Missing the point again

          We need laws to stop them because it is bad for society at large.

          That's a huge assumption, based on a hidden assumption that a monopoly cannot be toppled. In some cases (such as with gov't granted monopolies in intellectual property) that may be true. In others, less true.

          Economics alone will not keep that company from polluting, and we need laws to stop them because it is bad for society at large.

          You're talking about apples and oranges here. Economics and laws are not mutually exclusive things where you choose one or the other.

          So you agree with the basic premise that these laws exist to counterbalance pure economics to get a desired impact? That would be a start. If the laws do not give the results that we desire, we will of course change them. These laws have worked decently well for 200 years, I think they can be modified to work. Don't you think it is a bit early to throw them all out and start from scratch?

          No. I agree with the premise that laws exist to solve market problems. That's not "counterbalancing pure economics." Laws are a part of the economics.

          However, I also believe that history has clearly shown that cases of market failure are far and few between, so if you're going to use laws to correct market failure, you better damn well have serious proof that there's a market failure.

          And, finally, as I've stated repeatedly, this is not about scrapping the laws. It's about getting the content producers to recognize that it's to their benefit to embrace the lack of scarcity, or they're going to discover that their competitors have done it instead, and they're going to be in trouble.

          Removing IP laws will be a huge market failure, and will destroy entire industries. You know, I await with bated breath your ideas on how musicians, programmers, or drug companies are going to make money in a IP-less world, or what their motivation to create is going to be.

          Keep reading. We'll get there -- though I think I've pointed out plenty of examples in the past. But, we'll get to it in more detail as we move forward with this series of posts.


          Oh come on, you are just being silly now. Yeah sure, there is a huge contradiction between being for the breakup of AT&T and being against the ability for Justin Timberlake to control what happens to his music. Please.


          I don't see your point. You were the one who claimed outright that monopolies are bad for society. Why is it true in one case they are and in another they're not? Just because one is bigger than the other doesn't change the basic economic nature of a monopoly.

           

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    Alex Hagen, Nov 29th, 2006 @ 4:17pm

    things that are wrong...are not

    "First, that the lack of scarcity is only due to piracy"

    Lack of scarcity IS only due to piracy. Content producers have a constitutional right to use their product as they see fit for a limited time, and many use the right to create scarcity to drive up the price of their works. This has worked, more or less, in this country for 200 years. But now there exists a culture that sees breaking these laws as OK, and there is method, called the Internet, that makes people believe that they can do so with impunity. This outlaw culture has forced the content producers to step up the rate at which they use their legal rights to sue those breaking IP laws, but the fundamental ways they do this, and the laws and right involved, have not changed a bit.

    "second, that there's some way to really stop piracy."

    Stop? Probably not. Get under control again? Yes, that's possible. Allowing John Doe suits based on IP addresses will kill the public brand of piracy that is rampant on P2P and Usenet if done in enough quantity. Content producers have no real choice but to do everything in their power to stop it. The alternative is destruction of the entire copyright system, which would hurt everyone.

     

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      Mike (profile), Nov 29th, 2006 @ 5:27pm

      Re: things that are wrong...are not


      Lack of scarcity IS only due to piracy. Content producers have a constitutional right to use their product as they see fit for a limited time, and many use the right to create scarcity to drive up the price of their works.


      Okay, let's try this one more time. The WHOLE POINT of these posts is to show that there is benefit in embracing the lack of scarcity, rather than trying to set up artificial scarcity.

      It's from the producer's side, not the consumer's side. It makes no difference what the law is. The point is that anyone who tries to keep using the existing system will find themselves in trouble when others develop business models that are based on the lack of scarcity. It has NOTHING to do with changing the laws or getting rid of copyrights or anything like that that you seem to suggest this is about.

      This has worked, more or less, in this country for 200 years.

      And the point is that it won't work much longer. That's because of the fundamental nature of the lack of scarcity. People will figure out business models that embrace it (some have already) and those that continue with artificial scarcity will find themselves in trouble.

      This has nothing to do with piracy. Why do you keep bringing it back to that point?

      Stop? Probably not. Get under control again? Yes, that's possible. Allowing John Doe suits based on IP addresses will kill the public brand of piracy that is rampant on P2P and Usenet if done in enough quantity.

      Again, this doesn't matter to the core argument, but what do you consider "enough quantity"? The 10s of thousands of lawsuits already aren't enough? So far, they've only increased the about of unauthorized copying out there. That's getting it under control? Please.

      The alternative is destruction of the entire copyright system, which would hurt everyone.

      There are two big assumptions in there, and I'd argue both are wrong. There are many alternatives, and not all involve the destruction of the entire copyright system, but recognizing that it does you less good to use it. The second huge assumption is that it would "hurt everyone" and there's empirical evidence that that's simply not true.

       

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      Reed, Nov 30th, 2006 @ 12:32am

      Re: things that are wrong...are not

      "Lack of scarcity IS only due to piracy."

      I would disagree here. Scarcity simply doesn't exist in the digital world.

      "many use the right to create scarcity to drive up the price of their works"

      During the Great Deppression millions of tons of food were dumped in order to try to shore up the commodities market. This of course was happening while many people went hungry, is this really the system you are advocating for?

      "But now there exists a culture that sees breaking these laws as OK, and there is method, called the Internet, that makes people believe that they can do so with impunity."

      You sound like some old guy complaining about Rock and Roll. Sure it is different, but hey it is the future so get used to it.

      "Get under control again? Yes, that's possible. Allowing John Doe suits based on IP addresses will kill the public brand of piracy that is rampant on P2P and Usenet if done in enough quantity."

      John Doe suits on IP addresses.... Why don't we just start searching everyones house and arresting them for anything we find?

      Are you really trying to say that the Internet is destroying the way America does business? Is this the same kind of destruction that electricity or the car brought...? If you are advocating protecting the horse whip makers (Media Moguls) and forcing us to use horse drawn carriages (DRM) then I think you are just a little out of touch with wants and needs of the 21st century.

       

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      Vincent Clement, Nov 30th, 2006 @ 7:37am

      Re: things that are wrong...are not

      Content producers have a constitutional right to use their product as they see fit for a limited time, and many use the right to create scarcity to drive up the price of their works.

      I could accept that argument if the length of copyright was never extended and if the DMCA never existed. Content producers have been given a government granted monopoly that most industries can only dream of. Pharmaceutical sink far more into R&D then any member of the RIAA or MPAA spends on development, yet they only get 20 years of protection.

      This has worked, more or less, in this country for 200 years.

      When the Copyright Act of 1790 was passed, it limited the life of copyright to 14 years plus a renewal of 14 years. Now copyright extends 70 years after the death of the creator of that content. Walt Disney created works that were based on public domain works, however, no one can create a work based on Walt's movies until 70 years after his death. How does extending copyright 70 years after someone's death "serve the public interest in promoting the creation and dissemination of new works"? So, no, it has not worked, more or less, in your country for 200 years.

      Content producers have no real choice but to do everything in their power to stop it.

      They have plenty of choices. They could actually make their content more valuable by adding other features, or bundling it with other content or so on and so on. They actually may have to market their content.

      Lack of scarcity IS only due to piracy.

      If, the lack of scarcity is only due to piracy, then media companies would be bankrupt and no store would be selling CDs or DVDs - how could they compete with free? Funny thing is that an overwhelming number of people continue to buy their music on CDs and an ever growing number of people are paying for downloads. People see some value in buying content. I think you'll find many people who 'pirate' are forced down that route because of DRM not because it was free.

       

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      ben dover, Nov 30th, 2006 @ 7:32pm

      Re: things that are wrong...are not

      stopping piracy IS impossible (even "getting it under control" is a joke)
      how many people have been wrongly sued so far? how many cases has the **AA run from, when, and if the defendants had the financing to fight back? (every one?) Hopefully the end of the Cartels is near... will be a bright day when it happens...
      and no media will not stop flowing.. actually it may get better than the current homogenized, commercialized, pasteurized slop spoon fed to the masses by the industries....

       

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    William, Nov 29th, 2006 @ 5:10pm

    An lession in economics

    Two things drive prices.
    1) Marginal cost.
    2) Scarcity.
    With copyrighted material the marginal cast of production is close to zero but because of the copyright the the company that owns it has a virtual monopoly so there only concern is maximizing profit. so the record labels ask themselves what is the highest price we can charge without significantly impacting the number of copies sold.
    There are no other legal sources for copyrighted material and therefore record labels can charge whatever they like per CD. They could charge 1000$ per but they wouldn't sell many records.
    Someone said the downloads don't mean sales lost because not everyone who downloads would have bought the product and that is true but some of them would. Because demand is driven by two forces that are opposing each other.
    1) Price.
    2) Desire.
    If you desire something enough you will pay any price to get it. So if I really want a PS3 this year my only option is to pay a higher price on EBay to get it. And likewise I will not buy every CD that comes out but only the ones that are worth more that 14.99$ to me. But if the price is free and the only cost to me is storage then I would buy much much more music.
    It is my firm belief that we will be paying 99 cents per song for a long time so you might as well get used to it. at least you don't have to by an entire album to get one good song anymore.

    P.S. Sorry for being such a downer

     

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    William, Nov 29th, 2006 @ 5:52pm

    one other thing

    You have said time and again that about free content that.

    People will figure out business models that embrace it (some have already) and those that continue with artificial scarcity will find themselves in trouble.

    But I have yet to see an example that would work in the large scale or be as profitable as the current system. And until such a thing arises the system will not change.

     

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      Mike (profile), Nov 29th, 2006 @ 6:12pm

      Re: one other thing

      But I have yet to see an example that would work in the large scale or be as profitable as the current system. And until such a thing arises the system will not change.

      Two points on this:

      (1) There are plenty of examples that work large scale. In fact, part of the point of this is that it scales much better than the current model. Think Amazon compared to Barnes & Noble's brick and mortar business. Think Netflix instead of Blockbuster. These are both businesses that learned how to embrace the lack of scarcity and make a ton of money at large scale. The same thing is happening in plenty of other businesses and will continue to happen in any business where scarcity is not present.

      (2) You're making a false comparison in saying "be as profitable as the current system." That assumes that the current system remains as is. Part of this series is pointing out that it cannot and will not remain as it is. So, the comparison should be between where a company will be if it continues the current business model compared to a company that has learned to embrace the lack of scarcity in the world.

       

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    The Dukeman (profile), Nov 29th, 2006 @ 5:57pm

    lucid, multi-faceted diatribe

    In reading these posts, I see a fair amount of lucid reasoning in most of them. The failure of any one argument in a series to fully realize itself in no way negates any of the other arguments in the series. As long as the idealogical sparring continues to be fairly mild, the conversation as a whole will eventually allow the ideas behind it to emerge.

    Metaphorically, I envision the IDEA to be in the center, like a globe. The participants are viewing this idea with goggles that focus on a tiny part of the globe. As they continue to circle the globe in ever changing speeds and directions, they are each absorbing the data available through the goggles and forming a recreation of the idea in their minds. Eventually the idea will be replicated, if not in its entirety, then at least mostly so.

    Please continue. My interest is piqued.

     

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    mousepaw, Nov 29th, 2006 @ 7:36pm

    When

    Mike, would you care to venture a forecast that explains what is going to happen and how? (You mention that companies are going to have to embrace this idea or lose out.) Perhaps you would name a company (that is fairly well known) that is resisting your theory? Everytime I think I've got it there's a curve.

     

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    Evostick, Nov 30th, 2006 @ 4:05am

    Cost of Zero - 2 Empirical examples

    The online economies (second life, magic swords in fantasy games) are also in a bit of a mess due to the zero replication cost. The fact that the market is virtual is irrelevant. Though I think you may have covered this in previous posts.

    What follows may seem off topic, but if keep an open there are parallels.

    There is a much more common (in terms of value and of people using them) real life example of Cost of Zero - Financial Derivatives.

    Banks set up an agreement between two parties where one will owe the other a prescribed amount of money at a future point in time, dependent on an event happening or not happening.

    Value is created. One party holds an asset (which is equivalent to money as it can be traded for cash), the other has to pay the asset holder at some future point.

    Creating more derivatives is pretty much zero cost.
    The big difference between this example and IP is that there is no content to start with.

    (If Financial Derivatives are unfamiliar, then the above could be re-expressed in terms of taking out Insurance and borrowing the Insurance premium from the bank)

     

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    Roykabob, Nov 30th, 2006 @ 1:34pm

    Yeah, this series is a smokescreen for piracy!

    It's all just a much more educated way of saying that if there is nothing physical taken than it isn't "stealing", which is just a crap rationalization argument.

     

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      Anonymous Coward, Dec 1st, 2006 @ 8:50am

      Re: Yeah, this series is a smokescreen for piracy!

      It's all just a much more educated way of saying that if there is nothing physical taken than it isn't "stealing", which is just a crap rationalization argument.
      I imagine everything you disagree with is "crap" in your mind.

       

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      Anonymous Coward, Feb 27th, 2012 @ 11:29am

      Re: Yeah, this series is a smokescreen for piracy!

      man, im a lawer and i can assure you that it is not a crap rationalization argument... Words have precise meanings, especially when it comes to laws.

      regards

       

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    Hodejo, Nov 30th, 2006 @ 3:57pm

    CDs and the Scarcity Principle

    Found this article from 2003

    CDs and the Scarcity Principle http://www.mp3newswire.net/stories/2003/scarce.html

     

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    Micro$oft windows Vista DRM, Dec 2nd, 2006 @ 3:37am

    ^_^ DRM in vista will force all the piracy free mp3's to not play if they are not legal drm songs thats the big secret new pc os that forces DRM restrictions of people freedom :(

     

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    Micro$oft windows Vista DRM, Dec 2nd, 2006 @ 3:37am

    ^_^ DRM in vista will force all the piracy free mp3's to not play if they are not legal drm songs thats the big secret new pc os that forces DRM restrictions of people freedom :(

     

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    Portia, Dec 3rd, 2006 @ 12:32pm

    fascinating stuff...really really interesting and I need to reference some of these points for my dissertation on digital distribution & film. Mike! any published work anywhere on these subjects? Can anyone recommend any books on the topic? would be much appreciated...

     

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    M1$t1f, Jan 18th, 2007 @ 3:54pm

    I am a Pirate?

    I have an old Computer Game. It came on five CDs and I recently dug it out and dusted it off thinking that it might be fun to finally finish it. The license agreement prohibits duplicating the disks. At the time I bought it I didn't even own a CD writer.

    Disk one is bad.

    If I am caught downloading an image of disk one I would be considered a pirate. The company that "hosted" the game (put their name on the label) almost acts like it never existed. The people who actually made it are virtually non-existent, and no-one has sold copies of it in years (except maybe on e-bay).

    Preventing someone from protecting an investment is insane - whether it is through stern language, laws, or engineering/innovation.

    (Warning non apples to apples comparison ahead!!!!!!)

    If I want to protect my scratched or dented car I can paint it, I can also replace parts on it and if I really wanted to, and knew how, I could even make the parts myself.

    But I am not legally allowed to protect the CDs and DVDs I buy in the manner that protects them best - only using a copy of the original, so if it is damaged I can make a second copy to replace the first, and still protect the original.

    The industry wants disks to be impossible to duplicate and easy to damage so they can sell replacements. And when profits are down and they don't sell that title anymore YOU are out of luck, not them - they made their money, they are happy.

    Anyone remember when CDs first appeared? You could buy a drive that used a disk caddy which protected the disk when it was out of the machine because the disk could just stay in the caddy until you wanted to take it out. No dust, no scratches and disks lasted a good long time. Have you seen what rental disks look like these days? I've seen scratches, fingerprints, food and even teeth marks. I look at the disks before I leave the store these days.

    The rental industry has the money to keep replacing these things, I do not.

    And about DRM - HD DVDs were just cracked and the movie industry has a plan. If the keys needed to copy an HD DVD get released they will just disable the keys, then no-one can play the disk (that won't stop it from being illegally copied). They will change the keys, re-press the disks and if you want to watch the movie you will need to purchase a new disk - too bad, sucks to be you. Hell will freeze three times over before I will take one of these disks as a gift!

    So anyway, about that game. I had disk one in a drive that began to spin too fast and seemed to have some way of putting on the breaks to stop the disk from shattering. Whatever it was grabbed the disk at the outer edges, but the disk was full to the edge. I have tried every repair trick/device I have come across, but to no avail.

    Anyone know where I could find an image of "Armed and Delirious" disk one (I only need disk one)? And if that question makes me a pirate then I wear the badge proudly!

     

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    Dewy, Mar 18th, 2007 @ 8:39pm

    Love this Debate

    If any of us are musicians we know the price of recording is plummeting thanks in large part to cheaper and better quality recording gear. A demo recording to get your band into clubs would have cost $2000, but now for $899 you can buy a nice digital recorder and make an infinite supply of 3rd rate recordings.

    I'd also like to point out a couple of fundamental flaws I see in this discussion from time to time.

    piracy vs scarcity:
    Piracy implies someone "lost" something in the transaction. A sale or royalty... or are being denied "control" over the distribution of said works. What we are debating here is the SCARCITY issue... its no longer difficult to distribute large "works" of art... that bottleneck of the market is opening up. This takes us to our next source of confusion...

    "Laws":
    There are laws set into place by governments or industries that are often changed, modified, or even struck down for various reasons. these should never be confused with the laws of economics. The Laws of economics are INDEED like the laws of physics... and amoral. If I release a rock above your head the result may have moral implications... but morality has nothing to do with the rocks reaction to gravity.

    Mike is sharing with us a fundamental law of economics here... when the cost of distributing something (water) reaches zero, the market changes. Now either business changes with the market... or is left behind as consumers vote with their wallets and pay business models that do.

    The only thing I have seen Mike advocate here is that the industry accept and react accordingly these facts. His Argument may be useful to those among us who choose filesharing and need to help others understand that filesharing is NOT thievery... but he is speaking to the industry, not the consumer.

    I'd like to once again point out, music was never intended for a bottle... it was never intended as a single use commodity. Music is a gift of the spirit from musician to affeciando... and anything inserted between is vile and insufficient. There is no fee I can pay David Gilmore to compensate the suffering and weathering that was required for him to record Comfortably Numb or distribute that recording.

    And yet the industry that "represents" him has shaken me down 3 times for the cost of the cassette and once for the CD. (actually, when I bought the CD they were still enforcing the 12 song limit per CD, and its a double CD set...) Shall I continue to pay for this song every time I play it, and again for every device I choose to play it on? How about my friends, must they purchase a license to listen to it with me, or if I decide to show them the guitar or bass lines?

    I've seen him in concert twice, and purchased other recordings he has made... but I think I've paid them for Comfortably Numb, and they've paid him.

     

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    Scorpiaux, Jan 6th, 2008 @ 7:41pm

    Cost of development and distribution

    It is absurd to argue that once a new product is developed, there are almost no further costs. First, whether a new jumbo jet is being prototyped, developed, and then delivered or a new piece of music gets written, gets developed into a marketable piece of work and then the original first copy gets produced, not only those costs but the costs of duplicating, inventorying, and marketing must be taken into account. Those costs are not zero. Not only that, profits may not appear until a substantial portion of the final number made has been successfully sold. That could be weeks, months, or years later. People work hard in the creation of ideas, products, patents, copyrights. Success is not as frequent as failure. Why add to the burden of a creator the prospect that his or her creation(s) will likely provide no financial reward and probably produce a net minus revenue stream by allowing access to content without the recipients paying for it? What happens to incentive then?

    I recall watching an interview by an American of a Chinese national software developer in China a few years ago why he didn't sell his programs on the Chinese market. His answer was simple. Paraphrasing, because as soon as he provided an original for marketing it was quickly copied and sold cheaper than it cost him to make it. The sellers had no development costs, so they could sell cheap something they did not make and since China did not respect intellectual property as property, they were free to copy anything they wanted without penalty. Notice that China has no software development industry. Whatever development is going on is treated as a trade secret or a government secret. There are people here that somehow think this is better? Not I.

     

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      Mike (profile), Jan 6th, 2008 @ 10:25pm

      Re: Cost of development and distribution

      It is absurd to argue that once a new product is developed, there are almost no further costs

      Marginal costs. Learn some economics.

      First, whether a new jumbo jet is being prototyped, developed, and then delivered or a new piece of music gets written, gets developed into a marketable piece of work and then the original first copy gets produced, not only those costs but the costs of duplicating, inventorying, and marketing must be taken into account.

      Again, learn what marginal costs are. It'll make this discussion a lot easier and make you look slightly less clueless.

      Not only that, profits may not appear until a substantial portion of the final number made has been successfully sold. That could be weeks, months, or years later.

      This point is meaningless. Learn the difference between fixed costs and marginal costs.

      People work hard in the creation of ideas, products, patents, copyrights.

      No one denies this. Why would you imply that?

      Why add to the burden of a creator the prospect that his or her creation(s) will likely provide no financial reward and probably produce a net minus revenue stream by allowing access to content without the recipients paying for it? What happens to incentive then?

      Huh? That's not what I'm doing at all. I'm showing them MORE ways to make MORE money. I'm providing MORE incentive by showing they don't need to rely on the crutch of artificial scarcity, but by embracing abundance can open up new markets and make more money.

      Notice that China has no software development industry.

      Your ignorance is astounding. China has a huge and thriving software development industry -- it's just that it's based on very different business models.

      I should note, by the way, that China also has a thriving music industry (not recording industry!) by embracing these new models as well: http://www.techdirt.com/articles/20050504/1041227_F.shtml

       

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    Overcast (profile), Jun 13th, 2012 @ 10:39pm

    I don't blame the record companies for suing on behalf of the artists. In fact, I wouldn't blame the artist for hunting the offenders down and beating them senseless.

    So then - why would an artist even consider putting their own music on the radio for 'free' if it's that detrimental to their profits?

    It is zero cost to the consumer, short of buying and powering a device to receive the signal...

    They can sue, sue, sue, sue - but I really doubt it will work. If the web becomes draconian and monitors everything - people will trade CD's. Just like cassettes in the 80's.

    And once again - I will not buy music I have not heard for 'free' - 98% of the time.

    Bought more CD's in the last year because I heard it for 'free' on Pandora than I have over the last 10 years.

    People who are going to steal are going to do it digitally or just take it in the store. I wonder - if physical CD theft has dropped dramatically (you'd almost have to be an idiot to risk stealing one now) - and how that impacts the artist and company as well... interesting angle to think about.

     

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