Mainstream Press Waking Up To The News That Musicians Are Making More Money

from the took-'em-long-enough dept

I believe that we were the first publication to report on the study released by PRS in the UK, way back in July, indicating that overall music revenue was up, even as the sale of recorded music was dropping. It showed how live revenue was making up a good part of the difference, and other aspects of the business were making up more than the rest. While we've pointed to that study numerous times in the meantime, we've been quite surprised that no mainstream press picked up on this seemingly remarkable news -- as it went against the prevailing favored narrative (as pushed by the RIAA) that the music industry was in trouble. Especially when combined with the recent Harvard study by Felix Oberholzer-Gee and Koleman Strumpf, that also showed that revenue in the overall music ecosystem was significantly higher today than in the past, it really was quite amazing that the press (and politicians) continued to spread the lie that the music industry was in some sort of trouble. It's not. It's only the business of selling plastic discs that's in trouble.

The good news is that the mainstream press seems to finally be waking up to this. As a bunch of you sent in, the Times Online in the UK has published a nice study highlighting the PRS numbers, complete with some very nice charts, showing that musicians themselves are making more than ever. The other interesting part: for all the talk about how recorded music sales losses are hurting artists, the chart proves the point we've made over and over again: musicians see such a tiny part of recorded music sales that this has had almost no impact on their revenue at all. The amount of money musicians make from recorded revenue has remained just about constant.

Source: Times Online Labs blog

It's great that the press is finally starting to dig into this -- and the Times Online even admits that perhaps it should not have let Lily Allen claim in its own pages how much "harm" was being done to artists due to file sharing, because the numbers simply don't support it (of course, we pointed this out when the whole Allen mess was going on...).

Now, some people have raised some concerns over the numbers -- specifically, there have been some claims that the "live" numbers are distorted due to so-called "heritage" acts and legacy acts, who have been around forever and still pack large stadiums with increasingly higher ticket prices. And, indeed, that almost certainly has some impact on the numbers. It would be nice to see a similar report that starts to break out some of the details -- and we've been talking to a few people who are trying to dig deeper into the amount of "live" and "alternative" revenue streams to better understand where the money is going. Hopefully we'll have more complete data soon, but the initial things I've seen suggest that the original point remains true. Artists across the entire spectrum of the industry are making more in live revenues than they have in the past -- and, in part, the increase in live revenue is due to file sharing. In talking to different musicians, we've been hearing plenty of stories about how they're strategically pushing free versions of their songs on local audiences before embarking on tours or even individual shows -- and they're seeing larger turnouts than in the past because of it.

Hopefully, with more mainstream publications finally picking up on this, both the press and politicians will begin to recognize that the only real "crisis" in the music industry is for those who have stupidly relied on selling plastic discs for way too long. There are plenty of revenue opportunities for musicians, and because of that (in combination with better and cheaper tools for music creation), the actual music industry is thriving at levels never seen before.

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Information Should Not Be Free... Says InfoWorld Columnist That You Can Read For Free

from the just-saying dept

Doug sent over a link to an angry screed by columnist Bill Snyder that bashes anyone who thinks anything should be offered for free. Want to read it? Go ahead, because it's free at InfoWorld.

And, of course, that's the problem with Snyder's analysis. It doesn't take into account the wider business model. The reason that Snyder's article is available for free is because InfoWorld has decided that it has a better chance of monetizing that content by offering it for free and selling advertising. It's other option would be to charge people directly to read Snyder's economically confused analysis -- but then no one might pay. So which makes more sense? According to Snyder, the latter.

Snyder also takes on the scourge of free WiFi, that pretty quickly showed that paid WiFi is a niche market, only working where you have limited and captive audiences (and even it is under greater and greater competitive threats). Unfortunately, his economic analysis is misguided:

News and Wi-Fi service are commodities, just like cars, housing, and food are commodities. Labor and raw materials, as well as the capital to buy them, are the essential ingredients of most any good or service we might care to own or consume. No money, no commodity -- that's a basic economic principle that the digital revolution has done nothing to change.

Sounds good, but it's wrong. Very wrong. Yes, they're commodities, but the defining rule of a commodity is that it is priced on the marginal cost, not the fixed costs. And yet, Synder suddenly thinks that while that applies to cars, housing and food... it goes away in the digital world? The only person really claiming that the economics has changed is Snyder, in insisting that digital products do not adhere to the same laws of supply and demand.

Snyder seems positively confused that free is a part of a larger business model:

I don't write for free, my editors don't edit for free, and I'll bet your IT hands don't run networks or produce code for free.

And yet, your content is available for free. Funny how that works. Why does it work? Because it makes good business sense. But, to Snyder, when this is pointed out, he gets confused and thinks that it proves his point:

I know, I know -- some of you are going to bring up open source.

Sorry, that proves my point. Open source has grown in influence and quality in the last few years as business models in the community have evolved. Not too long ago, any open source company that dared post a paid or paid-support enterprise version of its software would be pilloried. But not any more. The recession has put many excellent technologists out of work, but there would be even fewer employed if open source companies were afraid to make a profit, then plow it back into development projects and expanded infrastructure.

Just ask the open source millionaires at MySQL if they think everything they produce should be free.

Snyder figured out the wrong thing. Yes, getting paid is important, but the question is what you get paid for, and he's asking people to charge for the parts of a business that make the most sense being free -- and doesn't explain why he gets to decide what should be free and what shouldn't. The answer, really, is that none of us decides: basic economics tells us. If you have a competitive product with no marginal cost, it's going to eventually get driven to free. Whether you like it or not. And then you shouldn't whine about the evils of "free." You should instead figure out ways to use that to your advantage.

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Is WIPO Taking An Evidence-Based Approach To IP Enforcement?

from the finally dept

While the World Intellectual Property Organization (WIPO) is often seen as being inherently in favor of stronger intellectual property rights, every so often, the organization shows itself open to more reasonable approaches. A few years back, for example, it questioned the evidence on patents, and had trouble finding any real evidence that stronger patents resulted in greater innovation. Now, via Slashdot, we hear about a discussion at WIPO concerning "enforcement" issues where a number of papers were presented that pushed back on excessive pro-IP positions. These included a paper by WIPO Chief Economist, Carsten Fink, which calls out many of the previous studies on "losses" due to counterfeiting and piracy, and notes how misguided many of them are. While I think Fink uses some outdated and since disproved economic theory in his paper, overall it's nice to see at least some acknowledgment of moving more towards evidence based policy setting, rather than the maximalist's default "more is better" position.

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WSJ Editor: Those Who Believe Content Should Be Free Are Neanderthals

from the that,-or-people-who-understand-economics dept

Danny Sullivan has an excellent analysis of some of the more ridiculous statements from WSJ managing editor, Robert Thompson, trashing pretty much everything online. Most of Sullivan's analysis focuses on how ridiculous it is for Thompson to claim that Google makes news readers "promiscuous," so I won't address that again (though, you really should read Sullivan's writeup). Instead, I wanted to focus in one little bit that Sullivan mentions, but doesn't explore too much (other than to mention how insulting it is). Thompson declares that there are "three types of people" online, starting with:

There are the net neanderthals who think everything should be free all the time.

Pretty scary that someone who's the managing editor of the most well known and well-respected business newspaper out there thinks this, huh? First off, I don't know anyone who thinks "everything should be free all the time." People are more than willing to pay for scarce goods of value. Where they fundamentally have issues is with being charged for content that can be made free at no additional cost. And that's not "neanderthal" thinking, it's good old classic economics -- the kind we thought the WSJ supported.

And, of course, this also shows Thompson fundamentally not understanding the debate. For many, many years there's been plenty of "free content" in the terms of "free to the consumer" but which is supported in other ways. As Sullivan points out, News Corp., which owns the WSJ, also owns Fox -- which delivers free content, over the air, to consumers, but supported by advertising. Is that a Neanderthal opinion?

It really makes you wonder what they're thinking over at the WSJ or what sort of business smarts they have when they both consider Google to be a problem and think that basic economics on content pricing is "Neanderthal." It should call into question their thinking on other business topics as well. And, remember, this is the same company that is lashing out at "aggregators" like Google News, at the very same time that it's offering its own aggregator as well. If Thompson thinks Google News makes people promiscuous, why does his own site offer something similar?

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Trying To Explain The Economics Of Abundance In Two Minutes Or Less With A Whiteboard

from the well,-it's-something... dept

UPS recently asked us to create a series of three videos, where we try to explain some of the stuff we talk about here on Techdirt in under two minutes, using a white board. You can check out the first video here, where I attempt to give a quick visual explanation of the economics of abundance. It's a complicated topic -- so narrowing it down to less than a minute obviously involves simplifying some of the concepts greatly, but it should kick off a fun discussion.

There are two more videos that will come out in the next few weeks. And... since we've been having this big disclosure discussion lately, yes, UPS sponsored these videos (as is clearly noted in the video itself), though we had free reign in creating the scripts. As you'll see, I think it's pretty clear that nothing in the videos is any different than what I normally say, and none of it is somehow "influenced" by UPS.

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Three Economic Nobel Laureates In A Row Recognizing Power Of Infinite Goods

from the this-is-a-good-thing... dept

With the Nobel Prize in Economics being awarded to Elinor Ostrom (as well as Oliver Williamson) this year, plenty of people are noting that Ostrom's seminal work has to do with how the concept of "the tragedy of the commons" isn't really true in many cases, and how that "commons" can often self-regulate itself. And, Ostrom definitely recognizes how this applies to the "commons" that is the public domain. I didn't want to comment right away on this. While I've read Ostrom's work in the past, I wanted to revisit some of it, to refresh myself on it.

But what comes out in reading through her work is that she recognizes that government intervention -- such as with monopoly rights -- really doesn't make sense in many situations of "public goods." In a recent discussion on this site, people pointed to the concept of a "public good" as something that needs government intervention -- and I noted that more recent economic analysis showed that wasn't true at all. Ostrom's work is much of what kicked off that line of analysis (Coase deserves credit as well...). Her key finding was that in commons situations, the players can often work out perfectly reasonable solutions on their own, that don't involve regulatory efforts to put up fences or restrictions. The idea that a commons will automatically get overrun simply isn't true in practice. And that's exactly what we've seen in areas where there isn't intellectual property protections. The supposed fear of a "tragedy of the commons" never seems to show up. Instead, the markets adjust.

What struck me as really interesting, however, is that this is the second time in three years that the Nobel committee has awarded someone whose research highlights this point. In 2007, the award went to Eric Maskin, who has done work showing why patents can often be harmful (his focus was on software) -- again, suggesting that government intervention can be harmful in cases of "public goods." And, while it's less tied to the reasons why he got his Nobel or his core areas of research, last year's award winner, Paul Krugman, has recently come around to recognizing that "infinite goods" or public goods aren't a problem, but a potential opportunity as a market shifts.

It's nice to see the Nobel committee helping to get these ideas out there -- and highlighting the research that debunks the old wisdom that the answer to any public good is to create a gov't regulated monopoly system, rather than letting the market work out a solution on its own.

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Still Debating The Cost Of Ebooks

from the marginal-cost-people... dept

A few weeks ago, we wrote about why it didn't make sense that ebooks were often so expensive given that the marginal cost of an ebook is much, much, much lower than a physical book. ChurchHatesTucker points us to a recent argument against that claim by Andrew Wheeler:

Creating an individual ebook format -- one of the current suite of them -- costs roughly as much as creating a print-on-paper edition; the costs of the actual paper and ink are vanishingly small in this equation. Some ebook formats, such as the currently fashionable one, have a baroque process of creation that involves multiple transformations and iterations of quality control, which drives up costs further. And the cost per unit is massively higher for ebooks than for printed books -- infinitely so in some cases, since there are plenty of ebook editions that have never sold a single copy.

Now, the issue here, of course, is a fundamental misunderstanding the difference between total cost (or average cost) and marginal cost. This happens a lot -- especially among non-economists. But it misses the point. Total cost is important in figuring out an overall business model, because obviously you want to be able to make more than it cost overall, but it's a terrible way of picking a price. That's because the driving force in pricing is the marginal cost. Meanwhile, CHT also points us to a good rebuttal to Wheeler from Paul Raven, where Raven basically says that Wheeler is doing things wrong:

I'm not going to refute the claim that ebooks currently cost a lot of money to make. I am, however, going to say that they shouldn't cost a lot of money to make, that they don't have to, and that the longer they do, the smaller the chances of them ever becoming a viable industry in their own right...

He goes on to note that part of the problem is with the publishers themselves, and their inability to come to terms on a standard (and open) format.

But there are other problems in the ebook publishing world as well -- where it appears that some publishers are less focused on figuring out how to use the technology to improve the experience for readers, and more about how to screw them over. Charlotte Payan-Salcedo discusses her her recent attempt to buy some ebooks, where she discovers that the ebooks she bought require special software to read, including DRM that limits where the books can be read... and then discovers that the books "expire" after 180 days. She doesn't say it, but I'm guessing these are actually textbooks (both from the price -- $180 for two ebooks) and from the claim that they expire. When textbook companies first started offering ebooks, many of them were designed to "expire" after the course was over. I hadn't looked at the etextbook market in a while, and had sorta expected (hoped?) this silly concept was gone -- but apparently not. It looks like in this case, the publishers have figured out how to provide none of the benefits of ebooks, but added all sorts of additional negatives.

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Why Fining People Can Actually Increase That Activity... An Economics Lesson

from the fascinating! dept

I was recently having a discussion with a friend where I pointed out one of the biggest mistakes that people make in trying to understand economics is to assume, incorrectly, that "marginal benefit" or "marginal cost" means money. And, yes, this is actually a mistake that many economists themselves make -- and, in part, it's because the marginal benefit is often measured in monetary terms. So, people seem to think that if there isn't a monetary component it doesn't count. This makes for silly statements like "economics doesn't properly understand how people act." Almost every time that's said, when you look at the details, it's wrong. It's just that people assume that because someone does something for a non-monetary reason, economics can't account for it. That's simply not true. If people do things for a non-monetary reason, it's because they're receiving marginal benefits in some other manner, whether it's attention, pride, happiness, joy or "just because I want to." Those are all marginal benefits.

In fact, Clive Thompson points us to a study that highlights this in a really strong way. It's a series of studies that show that when people overestimate the monetary benefits (or costs) and underestimate the nonmonetary ones, they often set up really bad incentives.

For example, they've found that fewer people give blood when they're paid for it. For someone who thinks only in terms of the monetary benefits, this would make no sense. Why would giving people money lead to less of the activity. But the reasoning is that the real marginal benefit that people get from giving blood is the belief that they're doing good in the world and helping to save lives. Getting paid for it, actually hinders that feeling, by making the whole thing feel like a transaction. And the money paid is apparently a lot less than the decreased "good feelings" from the marginal benefit.

On the flip side, other experiments showed that fining people over certain actions (such as picking up their kids from daycare too late), actually increased the number of tardy parents. Again, if you think of this solely in monetary terms, this makes no sense. It now costs more, monetarily, to be late to pick up a kid. But, in making it a monetary transaction, it removed non-monetary costs -- such as the "guilt" of being late. As the article notes:

The fine seems to have reduced their ethical obligation to avoid inconveniencing the teachers and led them to think of lateness as simply a commodity they could purchase.

This is really fascinating stuff that is important for people to understand in setting up any sort of incentive structure. Money -- either on the cost or benefit side -- is not the only incentive. And thinking that it is often leads to miscalculating a series of other, potentially more important, costs and benefits. That doesn't mean that economics is wrong. It can handle all of that. The problem is when people assume that it's only the direct monetary costs and benefits that go into the equation. It is, unfortunately, a common problem, and leads to all sorts of confused thinking both about business models, but also about the economics profession itself.

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BPI Unhappy With Techdirt, Seeks To Correct The Record... But Still Gets It Wrong

from the sorry,-that's-just-not-accurate dept

So, we recently wrote about how Geoff Taylor, head of BPI (the UK's equivalent of the RIAA) seemed to be going after British Telecom (BT) with a variety of highly questionable claims about how BT had some sort of obligation to stop file sharing on its network, and that BT was using unauthorized file sharing to prop up its own business model. Both claims are flat out ridiculous, but BPI apparently was quite upset with us pointing that out. Of course, rather than actually respond in the comments where we might have a conversation about it, they've been sending us a series of emails, taking issue with our statements and laying out their claims in more detail. In the interest of an open debate, I'll post BPI's comments here, with my responses mixed in (but of course):

It's unfortunate that in a piece which wrongly charges BPI with making things up, you have misrepresented what our Chief Executive said. He did not say that "BT broke the law in not stopping file sharing", as you assert.

Hmm. Let's look at what he did say: "If you operate a commercial service and know it is being used to break the law, taking steps to ensure it is used legally is a cost of doing business." Perhaps there's a way to interpret that, which doesn't imply that BT is breaking the law in not stopping illegal activity, but it seems like that is the rather clear implication of his statement. But, BPI goes on to say they actually just meant BT has a "social responsibility" to stop the illegal activity. Ah.

BT fosters a reputation as a socially responsible company. BPI has questioned whether it's appropriate for such a company to do nothing about 100,000 instances "a small sample" of the illegal behaviour that BT knows is occurring on its network. BT knows about this activity because BPI provides detailed weekly notifications enabling BT to verify each and every infringement. BPI's notifications are based upon robust copyright infringement detection techniques which have been accepted by the UK High Court in over 150 cases.

I see. Would that be the same "robust copyright infringement detection system" that a recent study in the UK found was accusing elderly couples of downloading gay porn, along with a significant number of other "false positives"? Furthermore, there's quite a difference between knowing that there is illegal activity on the network and being able to stop it. As we noted in one of our original posts, in a land with due process (the UK has that, right?), people aren't guilty upon accusation. It appears that BPI has leapfrogged beyond even the draconian "three strikes" proposals and is looking for something of a "one strike."

But this is a serious question for BPI: really, what would you have BT do? You are informing them of activity you claim is infringing, but BT has no way of verifying that is a fact. Secondly, by the time you've informed BT, the activity is over. So what is BT to do at that point? Finally, how is BT to determine what ongoing actions are actually legitimate? Plenty of smart content creators choose to give away their works on purpose. Plenty of the record labels represented by BPI, even, have long histories of sending out mp3s themselves for promotional purposes. BT has no way of knowing which content is legit and which is not. Pretending that BT can wave its magic wand and suddenly be all-knowing is just silly.

Oh yeah, as for the claim that BT "fosters a reputation as a socially responsible company," I would think that such would include not violating the civil liberties of its customers by spying on what they do online in an effort to prop up someone's obsolete business model. Wouldn't you?

We understand that BT employs very sophisticated traffic and network analysis technologies that allows it to see the proportion of network traffic that is P2P. We have never said that all P2P traffic is illegal, because not all of it is. But the weekly notifications we send to BT relate solely to music files which we know are being shared illegally.

Again, BPI assumes that BT can magically tell which content is infringing and which is not. Just recently, we pointed out that EMI -- in the UK -- was happily distributing infringing mixtapes from Lily Allen off of an EMI owned website. If someone is downloading such content, should BT stop them? How could it possibly know which content in real time is authorized and which is not? And, more importantly, why should that be BT's responsibility? Just because the folks at the labels that make up BPI haven't been able to adapt? If BPI believes that individuals are breaking the law, why is it not going after those individuals? Obviously, because it knows that it would be a public relations nightmare. But just because BPI has a PR issue, it doesn't mean that BT should have to spend a ton of money trying to fix BPI members' broken business models.

Since 2003, annual UK broadband revenues have increased from £0.6 billion to £2.7 billion (2008). Recorded music revenues have fallen every year in the same period, principally due to illegal filesharing. It is therefore not difficult to see that the growth of BT's consumer broadband business has been assisted by the increase in illegal filesharing.

Wow. I mean... wow. Talk about a logical somersault. Seriously? First off, just because one industry's revenue falls and another's grows, it does not mean the two are causal. I mean, this is really, really basic stuff. Correlation, causation, blah blah blah. But, even then, the link is so tenuous as to be laughable. First, the claim that recorded music revenue is falling. Well... be careful. As we've been pointing out, PRS in the UK has admitted that the music industry is actually growing, not shrinking. Apparently, the folks at BPI don't read the PRS economic reports. If they did, they'd know that the study found that the overall industry is growing, with a big shift in money going from recorded music to live music.

BPI, you're blaming the wrong culprit! It ain't the ISPs, it's the live venues! And those bands playing live shows! Why aren't you demanding that they cut it out! After all, wouldn't it be the "socially responsible" thing for them to stop gigging so that people would go back to buying CDs?

And, of course, the whole claim that the decline in recorded music sales is "principally due to illegal filesharing" is also flat out, ridiculously, laughably wrong. Study after study has shown that file sharers tend to buy more. Isn't it a lot more likely that the decline in recorded music revenues is due to a shift in the marketplace due to technology? That technology has taken away the monopoly on distribution that BPI members used to have. Whenever you lose a monopoly on distribution, it's to be expected that you lose monopoly rents and your revenue goes down. That's Econ 101 (or maybe 201, if we're talking monopoly rents... depends on your econ prof).

Besides, we spend a lot of time here working with and talking to and about musicians who have embraced file sharing, and put in place smart business models to take advantage of it. And, you know what? They're doing better than they did in the past. The problem isn't "illegal filesharing." It's bad and obsolete business models. Those who are embracing file sharing in combination with a good business model are doing better than in the past. That rules out "file sharing" as the problem, and suggests the real problem is BPI's resistance to smarter business models.

Other ISPs are recognising that it is not sustainable in the long-term for a high percentage of ISPs revenues to be based on the transmission of illegal data, and that in future they need to share in revenues from providing high quality entertainment services for their customers

This is again ridiculous. ISP revenues are not "based on the transmission of illegal data." ISP revenues are based on the fact that pretty much everyone needs an internet connection these days just to function. It's how people communicate, you know? Claiming that BT is making any more revenue because people file share is laughable. People are using the internet because it's useful for all sorts of things. Hell, we keep hearing ISPs saying that they need to break net neutrality because all this file sharing is filling up their network and costing them too much in network upgrades. How can they be making so much money off of file sharing if it's costing them so much?

Once again, this is typical entertainment industry drivel. They totally overestimate how much their own stuff is "worth" to the wider ecosystem, and then demand that everyone just pay up. Except... that's not the way the world works. The world works by having smart people with smart business models figuring out ways to make people want to give you money, not by sitting back and demanding others just hand over money.

So, thanks for the emails, BPI, but at least work on making your statements a little more believable next time. And, as always, our comments are wide open for you to reply to and interact directly with people here.

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DRM Doesn't Enable Business Models; Blind Fear Disables Business Models

from the get-over-it dept

A bunch of folks have asked if I had any comment on analyst Michael Gartenberg post over at Engadget claiming that DRM has been demonized too far, and for all the "bad" things about DRM, most people really don't mind it, and we should be happy that it "enables new business models." I've discussed this before, but not in a while, so it seems worth revisiting.

First, it's a lie that DRM "enables new business models." Gartenberg doesn't realize it, but he admits it in his post, when he suggests that DRM made all-you-can-eat subscription models possible, while immediately countering that point by admitting the real factors are elsewhere:

Take subscription services for example. Sure, I'd love a service that would allow me to download unlimited content in high bitrate MP3 format for a reasonable fee every month. Except economics and greed will never let that happen.

Notice what he says here. The DRM isn't what enabled the business model. It's fear of how people will use such a service that does. It's fear that people will actually use what's been given to them -- leading to the claim of "economics and greed" stopping such a service from ever coming about. But, that makes no sense. People already have access to pretty much every song ever recorded with no DRM at all. Claiming that they need DRM to enable such a service makes no sense. It's already there -- just not legally. So what does the DRM stop in such a service? Absolutely nothing. If the fear is that someone takes a song and shares it online... too late. It's already happened. The only thing that DRM does in that situation is put up a restriction on a legitimate, paying customer. That makes no economic sense at all.

And that's my real problem with DRM. It cannot enable a new business model economically. That's because it's only purpose is to limit behavior. There are no business models that are based solely on limiting behavior. It may be the case that some companies may be too afraid to implement a business model without this faux "protection," but that's entirely different than saying DRM enables the business model. DRM takes an economic resource and artificially restricts it. It takes away options, it does not enable them. DRM hasn't been "demonized." It's a pointless solution that prevents no unauthorized sharing and only serves to hinder the activities of legitimate customers.

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Filmmaker Discusses Creative Marketing, Freeing Up Movies, Embracing New Business Models

from the sounds-cool dept

Nathan Smith alerts us to an interesting interview with filmmaker Sally Potter, discussing her new movie Rage, which has a variety of unique and interesting facets to it. The movie -- which has a bunch of famous actors, including Jude Law, Judi Dench, Steve Buscemi, Diane Wiest, John Leguizamo and others -- is being released first on mobile phones, with a different part of it released each day for a week (I believe this past week). The film is supposed to be from the view of a cameraphone, so that makes sense. But, Potter has also worked hard to cultivate a strong fanbase through a variety of online methods. And, of course, she's all about embracing "free," embracing what the technology enables, and thinks the rest of Hollywood is a bit silly to live in fear and try to lock everything down:

FNB: It's true, everyone is talking about this, what is the economic model? Is there one?

SP: Not yet. The music industry is slightly ahead of us and had to go through the same thing already and it's shock, horror, terror, everyone's going to go bankrupt because everyone can have everything for free. Lots of resistance, I'm talking about filmmaking now, legislating against copyright and everything is watermarked, anxious, anxious, and all that. And I think my attitude is, go the other way. Open the gates, say "okay have it." It's free, it's yours and then if you want me to go on and make other things, you're going to have to complete the circle by going out and buying the DVD. Maybe in the future it will be some sort of subscription model but I always wanted to do that with this one.

FNB: There was a recent article we read that said the next generation of digital consumers still wants to pay to go to theaters. It's not mutually exclusive, which is calming to know that just because one is succeeding doesn't mean the other is going to disappear.

SP: Its not either/or, it's AND. It might make cinema owners and distributors sit up a little bit, and make it a more pleasant and thrilling experience to go to the theater, make the quality of the projection better, the seats more comfortable, make it back to the real beginnings of what joining together in a big group is all about. Similar people can have their own access to watch it home on Blu-ray, its one of the things that I do. I have a good screen and I watch things together with a group of friends. Comfortably lying about. And that feel just as true of a cinema experience as going to some wonderful cinema.

Indeed. We've been pointing out for the better part of a decade that going to the movies is a social experience, and the best way to do that is to make that experience better. Many theaters have started to catch on to this (finally).

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Bad Ideas: Trying To Build Patent Marketplaces

from the a-market-in-ideas-after-the-fact? dept

The NY Times has what feels like a warmed over press release talking up the rise of patent auctions and makes some very one-sided and weakly supported assertions that this is somehow good for the market of innovation. It's not. In any way. There have been a bunch of companies trying to "trade" in patents or patent auctions, and all they've done is help make innovation harder by separating the idea from the implementation, and encouraging more lawsuits or extortionary techniques. Patents are no longer being used for innovation or to distribute knowledge. They're used to create a tax on anyone who actually innovates, and comes up with the same concept that others have come up with. Amazingly, the NY Times notes none of this. Instead, it makes the following statement:

And patents, after all, are ideas. Any market mechanisms that speed up the process of figuring out what a patent is worth should hasten the flow of ideas into the economy, accelerating the pace of innovation, policy experts say.

That's wrong. Flat out, bizarrely, backwards and wrong. Ideas don't need a market. You want a market for scarce goods. You don't need a market for goods that are not scarce. This is fundamental stuff and has been obvious for ages. Hell, Thomas Jefferson famously noted that very issue ages ago:

If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property."

Markets are for property exchange and the more efficient allocation of property. Ideas are not property, and making a market for them and holding them back doesn't accelerate the pace of innovation, it retards it. Greatly. And, more and more studies have been showing this.

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Paul Graham: Content Really Was Just A Way To Mark Up Paper

from the welcome-to-the-future dept

YCombinator creator Paul Graham is the latest "deep thinker" to grasp the deeper economic meaning of infinite goods: they can't be sold. In fact, Graham recognizes that there's never been a real content business. It's always been about selling the scarcity:

Almost every form of publishing has been organized as if the medium was what they were selling, and the content was irrelevant. Book publishers, for example, set prices based on the cost of producing and distributing books. They treat the words printed in the book the same way a textile manufacturer treats the patterns printed on its fabrics.

Economically, the print media are in the business of marking up paper. We can all imagine an old-style editor getting a scoop and saying "this will sell a lot of papers!" Cross out that final S and you're describing their business model. The reason they make less money now is that people don't need as much paper.

He goes on to explore how this applies to music, movies, books, newspapers and software. From there, he comes to the same conclusion many of us have been discussing for years:

What happens to publishing if you can't sell content? You have two choices: give it away and make money from it indirectly, or find ways to embody it in things people will pay for.

The first is probably the future of most current media. Give music away and make money from concerts and t-shirts. Publish articles for free and make money from one of a dozen permutations of advertising. Both publishers and investors are down on advertising at the moment, but it has more potential than they realize.

I'm not claiming that potential will be realized by the existing players. The optimal ways to make money from the written word probably require different words written by different people.

Good stuff and worth reading the whole thing, though I think he misses one key important ingredient. If you take a step back and look at the overall economics of such markets, you quickly realize how much bigger they get when you free the content from the constraints and scarcity of physical media. This is the hardest part for some people to see, at times, but the key to recognizing it is realizing that the content itself is a resource, rather than a final product, and you've just increased the availability and massively decreased the cost of that resource -- and you can then use it (for free!) to make many other things more valuable. That, in a nutshell, is the most exciting part about freeing up digital content.

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Bad Ideas: Trying To Make Content More Like Physical Property

from the bangs-head-on-desk dept

Let's play a little hypothetical. Let's say that someone had discovered a way to automatically -- without any additional cost -- create all the food that the world's population needed, and automatically have it appear wherever and whenever needed. Think of it like the "replicator" device in Star Trek, where you can just walk up to it, and it'll create whatever food you want. The entire issue of hunger and worries about the "scarce resource" of food would go away. Who, in their right mind, would want to break such a machine, and force this newly abundant resource back to being scarce?

Yet, that seems to be exactly what's happening in the music world. A whole bunch of folks have sent in this positively ridiculous attempt by some guy named Paul Sweazey to get the IEEE to endorse a new standard to make content act more like physical property by allowing it to be "stolen." It's basically a weird DRM system that would allow the content to be fully "taken away" from the original holder. I've read the article a few times, and I have to be honest, that I don't quite get it. Those who get the content would still be able to share the actual content with whoever they wanted, however many times they wanted it -- but there's a separate "playkey" and someone can "take" that away, such that those who had it before can't use it after. But why would anyone "take" the playkey, other than to be a jackass?

But the bigger issue is why bother in the first place? Why purposely try to limit an abundant resource by making it scarce? Sweazey claims:

His answer is that such freely-copiable goods breaks the basic business model of human commerce by making goods nonrivalrous; it no longer has aspects of a private good, and this makes it difficult to sell.

But, this is wrong. It shows an out-of-date understanding of economics. While it may mean that you can't directly create a (paid) market in that private good, it opens up and enables many more markets. Going back to the food analogy: if you had many more people in the world who weren't hungry, and didn't have to spend all their money on food or food production, would that be good or bad for the economy? It seems rather obvious that it would be good, as money could be spent on higher level things that expand the economy.

Taking an abundant resource and actively working to make it act like a scarce resource makes no sense. It limits progress and the wider economy, and it's the last thing that a group like the IEEE should be supporting.

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The Placebo Effect: Things Pharma Prefers You Not Worry About

from the here,-take-this-sugar-pill dept

There's a fascinating article in the latest issue of Wired about the placebo effect and pharmaceutical companies. It's fascinating for a few reasons: First, because it shows the thought process of pharma firms and why "what's best for pharma" is often not what's best for your health (which is a line often trotted out by those who believe in protecting pharma). Second, because it suggests that some (potentially significant) parts of pharmaceutical science -- the stuff we hear over and over again is so important to protect via patents -- is bunk. And, finally, just because it may surprise you to know just how powerful the placebo effect appears to be -- and that it's only getting stronger.

The critical point is that final one. Basically, the placebo effect (the impact had on a patient taking a sugar pill under the false impression that it's medicine) seems to be quite real and, at times, quite powerful and lasting. Even more surprising is that, over time, the placebo effect has only become stronger and stronger.

Now, if pharmaceutical companies were actually interested in your health, then this would be a ripe area of study, well worth exploring to see if the placebo effect could be better understood and somehow harnessed to make people healthy. But, of course, you can't patent a sugar pill, so pharma research dollars have gone into drugs that can be patented.

However, a serious problem has arisen: with the placebo effect getting stronger and stronger, these "wonder drugs" that pharma has been spending millions of dollars "developing" have increasingly been failing clinical trials, because they can't out-perform placebos. The theory behind testing against placebos is that if a drug doesn't outperform the placebo, you have to question what good the actual drug is and why it should be approved. So, if a drug fails to outperform a placebo, then (the thinking goes) the drug is useless. But that's partly based on the idea that the effect of taking a placebo is weak.

This leaves out an important part of the equation: If the placebo is really effective in dealing with certain issues, then why not examine how to utilize that fact to make people healthy? Some in the pharma world have been pushing for this for a long time, and have repeatedly asked the big pharma companies to release their data on clinical trials, in order to better understand the impact of placebos and to see if there's a way to harness their power. But the pharma companies have resisted and don't want to release the data -- in part because they're scared to death of what this all means. If sugar pills are effective, that's a very different business, and the claims of all of the drugs that are on the market would be called into serious question. Instead, they've apparently spent their time writing out detailed marketing plans that convince doctors to prescribe medicine that doesn't work any better than alternatives.

Now, let's be quite clear here: I am not saying that drugs don't do any good. There are plenty of pharmaceuticals that certainly help deal with certain conditions, and there are plenty of people who lead better lives (or are alive at all) solely because of modern medicine. But, these findings about the placebo effect certainly suggest that -- at least in many cases -- rather than dumping chemicals into the human system via a pill, your brain may actually be a lot more effective at concocting the proper chemicals itself.

If we had a healthcare system built on incentives to actually keep people healthy -- rather than just to sell more pills -- this would be the beginning of a very important field of study. Instead, it's been resisted and the data has been hidden away for years.

The incentive system is clearly screwed up. It's based on patents and hoarding information, rather than on actually keeping people as healthy as possible. If you could craft a healthcare system that actually rewards those who keep patients healthy, then perhaps we'd actually know a lot more about the placebo effect and, beyond it, our own brains' ability to produce important, potentially life-saving or life-improving chemicals on its own. In fact, in such a system, the incentives would be less about hoarding information, and more about sharing it, since, through collaboration, it would be more likely that more people could be kept healthier, allowing greater overall profits. The problem today is that the system is based on incentives that are misaligned... and thus, it's a struggle to get anyone to care about the fact that the placebo effect actually seems to help some people.

Update: As pointed out in the comments, Skeptic Magazine recently had an article that provides some more thoughts on placebos.

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Techdirt Book Reading List 2009

from the food-for-thought dept

A couple years ago, after completing my series of posts on the economics of ideas and infinite goods, I wrote up a reading list of books that were useful in thinking about all of this. With our recent launch of a book version of that series, called Approaching Infinity, I updated that list with a bunch of more recent books (basically, the books sitting on my desk again...), and wanted to share them here. For this post, I'm only writing up short reviews, but plan to revisit some of these books with much more detailed reviews, in the future. Not surprisingly, we'll kick it off with four of the books that I feel are the most important for anyone to read if they're interested in these things. Together, they make up the four books that you can get together (all signed by their authors!) in the Techdirt Book Club package.

The Essentials:

• Moral Panics and the Copyright Wars by William Patry

  Patry, long established as one of the foremost experts on copyright law, has written an outstanding text that discusses how copyright law has been twisted and abused by corporate interests who don’t use it for its intended purpose (to promote the progress of creative works) but as a tool to prop up an outdated business model. On top of this, he explores the misleading and inflammatory language used by those seeking to abuse copyright law in this manner. Highly engaging and a must read for anyone who’s worried about the state of copyright today. Oh, and as a bonus, Patry has started blogging again in support of the book, after he gave up on blogging a couple years ago.

• The Public Domain by James Boyle

  Law professor James Boyle has been one of the foremost critics of the undue expansion of copyright law over the years, fighting against things like the DMCA and the Sonny Bono Copyright Extension Act. Over the years, he’s noticed a troubling trend among some to question why the public domain is even needed — so he wrote an entire book to explain why. It’s filled with story after story that highlights both the importance of the public domain and how overly aggressive copyright laws have held back the public domain and the creativity that it previously allowed. As a highlight, don’t miss the incredible chapter on the birth of soul music by Ray Charles. If today’s copyright regime had been in force at the time, we might not have had soul music at all. Think of all the great music we may be missing today thanks to current copyright laws.

• Against Intellectual Monopoly by David Levine and Michele Boldrin

  This book was on the list two years ago, but that was an earlier digital-only draft, as opposed to the full hardcover version now available. Levine and Boldrin are two well-known economists who began investigating the impacts of intellectual property, and were eventually quite disturbed by what they found. That is, they could find no evidence that either copyrights or patents actually achieved their stated intention of "promoting the progress." Instead, they found a lot of evidence that the opposite occurred — and that copyright and patent law served to hinder the progress and slow down its pace. Chock full of examples and citations to important studies, this book is a must read for anyone trying to understand the state of today’s intellectual property law and how closely it lives up to its stated purpose.

• The Gridlock Economy by Michael Heller

  An excellent addition to the literature on property law and the economics of property. Heller recognized what he refers to as "the tragedy of the anti-commons," when too many property rights get in the way of the efficient allocation of resources, and notes how this has come into play on things like patents and broadcast spectrum. If you’re trying to understand the economics of intellectual property, especially if you’re a strong believer in property rights (as we are) this is an excellent book to understand where property rights can go too far.

Intellectual Property

• No Law by David L. Lange & H. Jefferson Powell.

  This is an incredibly worthwhile read. I plan to do a much more detailed review shortly. It methodically lays out the argument for how and why copyright law as it's written today clearly violates the First Amendment ("Congress shall make no law... prohibiting the free exercise thereof; or abridging the freedom of speech..."). The book is, at times, a bit dense to read through, but you kind of expect that from two lawyers. However, the detailed and thought provoking look at the history of intellectual property law, along with related legal concepts such as misappropriation and unfair competition -- as well as its detailed dissection of a few key court cases -- is, alone, worth the price of admission. I have some other problems with the book (including its eventual suggestions for how to "fix" copyright law), but there's so much value in the first half of the book that I'd highly recommend it.

• Patent Failure by James Bessen & Michael J. Meurer

  A must read for anyone looking to understand the patent system today. Bessen & Meurer go through a ton of the research that has been done about patent systems, and include a bunch of their own, and make the case that the patent system simply does not work for the majority of industries out there. The book is incredibly strong in detailing study after study after study that details, in an incontrovertible way, that the patent system is fundamentally broken and clearly hinders innovation much more significantly than it helps it.

• Copyright's Paradox by Neil Netanel

  Similar to No Law above, Copyright's Paradox goes into great detail showing how copyright law appears to quite obviously violate the First Amendment, and why that needs to be dealt with.

• The Patent Crisis by Dan L. Burk and Mark A. Lemley

  Mark Lemley should be a familiar name around here for his views on intellectual property, and this book certainly is a worthwhile read. It does a great job laying out the many problems with the patent system and why it often does significantly more harm than good. Where I find it a bit less convincing, however, is in suggesting that the court system can fix these problems. I agree that the current Congressional patent reform bills aren't very good, but I'm not convinced the courts will go anywhere close to far enough in fixing the system.

• Intellectual Property and Theories of Justice Edited by Axel Gosseries, Alain Marciano and Alain Strowel

  This is a collection of academic papers having to do with intellectual property, as related to not just legal and economic arguments, but philosophical ones as well. I don't agree with all of the different papers, obviously, but there's a lot to get your mind churning on different ideas and different approaches to intellectual property issues within this book.

Economics & Innovation

• Free by Chris Anderson

  By now, you should probably already know about this book, but Chris puts into book form much of what we talk about on Techdirt. My review of the book notes that it's well-worth reading, though I think he could have gone farther and could have done a better job anticipating how to respond to the obvious critiques from people who were responding emotionally, rather than based on the actual points raised by the book.

• The Venturesome Economy by Amar Bhide

  This is a fantastic read if you're looking to understand innovation in a global economy. It puts to rests various myths about globalization or off-shoring being bad for the US economy, and shows how innovation itself is global, but the key question is learning how to actually implement ideas, and how to take concepts and continually innovate, rather than just focusing on a small part of the puzzle.

• The Pirate's Dilemma by Matt Mason

  While it suffers from sensationalism, at times (too much so at points), the book does a fantastic job of highlighting example after example after example of how what some people feared as "piracy" was simply a leading indicator of innovation. In every case, the same pattern emerges: some existing industry freaks out over so-called "pirates," but the "pirates" are merely the market telling the industry what it wants, and what's possible. Eventually (often over massive protests from that industry) someone comes along and figures out how to deliver what the market wants -- and to do so profitably. This is a must-read for anyone who calls things "piracy" without understanding the real implications of what's going on.

• Predictably Irrational by Dan Ariely

  A quick and easy read that gets people to rethink certain easy assumptions about economic behavior. While I disagree with the idea that the actions are somehow "irrational," I do think it highlights how there are often more variables at play in an economic analysis than a simplified analysis takes into account. For folks around here, his investigations into how people respond to "free" within an economic model (i.e., they value it more than you would expect) are particularly noteworthy.

• Here Comes Everybody by Clay Shirky

  Pretty much anything by Clay Shirky should be required reading already, but this book is one of the best out there in getting you to understand how the old systems of production and consumption are changing due to enabling technologies, and how the old distinctions between production and consumption are melting away.

• Remix by Larry Lessig

  Not necessarily Lessig's strongest book, but still absolutely worth reading. It goes well with Matt Mason's (and James Boyle's) book above, in getting you to understand the nature of creativity, and the way in which nearly all creativity involves mixing one's own unique ideas with those that have come before.

• What Would Google Do by Jeff Jarvis

  While admittedly it can feel a bit preachy at times, once you get past that aspect of it, you realize that it's a manual for innovative decision making (not just in business). It's about recognizing that businesses by themselves don't get to call the shots any more, and if they don't realize that, they're probably not going to stay in business very long.

• Rebel Code by Glyn Moody

  If you want to understand how the concepts we talk about here can be applied in practice, the open source community is a good place to start. Glyn Moody has written an excellent account of exactly how that came about.

• The Future of the Internet: And How to Stop It by Jonathan Zittrain

  I actually disagree with the conclusions of this book, but there are still a number of good points raised within it, about how there's always a fight between "control" and "openness" in new technologies. Zittrain worries about the trend towards control, though I think in the end the market will settle things, and "control" will lose out to openness in the long run.

• A Culture of Improvement by Robert Friedel

  This rather epic tome goes deep into how innovation occurs in Western Society through a basic mechanism of a "culture of improvement": the idea that when something doesn't work right, we seek out a better solution. If you want to understand how innovation occurs, this is a good starting point.

• From Concept to Consumer by Phil Baker

  We've said it time and again: the real key to innovation is not the idea, but actually implementing it, and innovating to get the idea out there, and to see how you can deliver more of what a consumer needs. Written by someone who's done that many times over, this book is basically a guidebook for those looking to go from the idea stage to actually bringing a product to market. For those who think that the invention is the important stuff, and bringing it to market is just "business stuff," this is a worthwhile read.

Obviously, there have been a ton of other great books that have come out over the past couple of years, but these are the ones that I've kept close to my desk recently, and wanted to share with all of you.

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Myth Debunking: Fans Just Want Everything For Free

from the except-when-they-don't dept

The debate between Ben Sheffner and William Patry continues over at Patry's blog, and Sheffner has an interesting piece where he argues (delicately) that sometimes the customer isn't right. He admits upfront that this is a tricky position to defend, and he starts out with a more nuanced view as to why that is, but then he gets to this:

So everyone wants the product -- but too many don't want to pay for it. Hell, I don't want to pay for it. I would love it if I could get all the movies and music I want for free. And I would love it if I could get all the BMWs, houses in the hills, and meals at Urasawa I want for free as well. But of course I realize I can't. Just about everyone is with me on the BMWs and houses part. But too many think that movies and music should be free, and don't see anything wrong with taking them. I'm willing to say they're wrong.

Everyone understands why they can't have all the physical goods they want for free. But they have a much harder time understanding that with intangible goods like movies and music. IP is just harder to understand, and to explain, than physical property. We need theories to undergird it, special laws to define it, and special classes at law school to learn how to fight over it -- not to mention eight-volume treatises to tell us what the law actually is. So when people commit copyright infringement, they may think they're causing no harm -- but they are. They're undermining a system that enables those big, bad companies that everyone loves to hate, to finance the movies and albums that we all love.

This is a myth. It's a popular myth, and I'm quite sure that Sheffner and lots of folks on both sides of the debate think its entirely accurate. But it's a myth. The nature of a good economic transaction is one in which both parties are better off after the exchange. That means the people "paying" don't mind paying. They're happy to pay because they believe that what they have received is better than the cost it took to acquire it. But basic economics plays into the situation here: if the same thing can be made available by others in a better way, it's only natural for people to ask why they should have to pay.

But if you want real proof that there's a lot more at work than the idea that consumers just want everything for free and think that if it's not free they should just take it, look no further than the countless examples we've shown of people paying lots of money to support those providers who don't treat their fans as criminals, who don't try to prevent what the technology allows and who actually work to connect with those fans and give them a true reason to buy.

Everyone wants a good deal, and a fair deal, but people are more than willing to pay if it makes economic sense. Whether consciously or not, there are an awful lot of people who inherently recognize that the economics don't make sense when a good is infinitely available. As much as people have trouble understanding explicit economic concepts like supply and demand, instinctively many do, in fact, understand the very nature of abundance and what it means for pricing. It's not some nefarious story of a bunch of immoral "thieves" wanting stuff for free. It's an inherent understanding of competitive markets.

On top of that, Sheffner takes the position that paying for these things is necessary, because not paying for them "undermines the system," he is once again being misleading. It may undermine one particular way that the system works, but the false statement is implicit in his argument: that this is the only way of funding such creation. That is demonstrably false, as we've shown time and time again. I have no doubt that Sheffner is sincere in his argument, but it's based on a false premise that because the system used to work one way, back before technology changed the basic economics it relied on, that somehow we should all suffer by limiting what the technology allows and by ignoring basic economics.

It would be nice if it were possible, but I cannot find a single example of a modern society being able to successfully hold back or ignore what technology allows when it comes to economics.

Finally, way back when I was in high school, I worked at a bagel shop, which also sold other baked goods. The boss's position was that "the customer is always right" except for one particular issue: the customer could only get the next piece of coffee cake in order. We had this giant sheet cake coffee cake, and many customers didn't want "end pieces," and would ask for middle pieces instead. On more than one occasion, this resulted in angry customers stomping out -- and even once resulted in a fist fight between a customer and the owner's son. Over time, as more competition entered the neighborhood (a Dunkin' Donuts across the street, another bagel shop a block away), we lost a lot of business for our baked goods.

The point, which should be clear, is that you can say the customer is wrong all you want. But, in the end, the market will decide that the customer is right. Always. If you don't provide what the customer wants (a fair transaction) and others are able to do so, you will suffer.

The movie industry and the music industry both have had numerous opportunities to embrace what the technology allows -- and to craft new business models that would be massive money makers in doing so. They have chosen not to do so. They have said that the customer is wrong, and, as Sheffner notes, they have no problem saying so. The problem is that, whether legal or not, the competition is springing up left and right. Sheffner and his former colleagues can stand on whatever principles they want. The market doesn't care. The market only cares for those who serve the customers' needs. Plenty of others are doing so (both legally and illegally). Those who want to survive in business would be smart to take lessons from those who are succeeding and looking to implement smart business models around them. Those who want to insist that "the customer can be wrong" may feel good when they look in the mirror, but they're going to have to contend with a rapidly diminishing customer base.

The customer can be wrong, but focusing on that doesn't get them to pay you.

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It's Not Just The Entertainment Industry Facing An Economic Upheaval

from the hello,-energy... dept

People often ask why we focus on the entertainment industry so much around here, and one of the points I've tried to make is that what's happening in the entertainment industry is nothing but a precursor to what's going to happen in almost every industry out there, as new technologies come about that change the fundamental economics that their old business models relied on. Healthcare? Packaged goods? Food? Financial services? All may be facing similar issues before you know it, and having a clear understanding of what went right and wrong in the entertainment industry will hopefully help those industries avoid making the same mistakes (they can make new ones instead!).

Another industry where this is already starting to happen is energy. In a discussion on HP's datacenter efforts, there's a quick discussion of how the energy industry is facing the same "dematerialization" threat as the music business:

But ultimately, the goal is making the world lighter, also called "dematerialization." Information technology can help replace energy-intensive and carbon-heavy methods--with basic materials, business processes or entire business models. Think of how the digital transformation has completely redefined the production and distribution of music.

Extend that model more broadly: By 2012, all of the servers in the world will use as much power as was used by all of Mexico in 2007. Breakthroughs in photonics allow us to use light instead of copper wire to transmit data. Not only can we reduce the use of natural resources, we can dramatically reduce energy consumption, taking another step forward from the work we've done at Wynyard.

While it may not seem to impact people as directly, I'd argue that what eventually happens in those other industries will have an impact far greater than anything that happens in the entertainment industry -- so we might as well look deep into what's happening to understand it now, before we create a much bigger mess in other industries.

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Why Virtual Property Doesn't Make Sense

from the bingo dept

I've long had trouble with the idea that "property rights" make sense in virtual worlds. After all, the entire purpose of property rights is to efficiently allocate resources in the presence of scarcity. If there's no scarcity, there's no question of efficient allocation (everyone can get as many copies as they want). However, for whatever reason, there's been a big push to create "property rights" within virtual worlds. Slashdot points us to an excellent paper that goes through the arguments for assigning property rights in virtual worlds, and even models out some scenarios based on them. In the end, it finds no compelling reason for assigning property rights in virtual worlds. Here's just a snippet, from a look at whether or not property rights make markets more efficient in a virtual world:

Extending property rights to virtual resources does not make more efficient markets for those resources. The qualified approach to virtual resource property rights provides no reductions in the search costs of a buyer since the legal rights and attributes of those resources mirror those granted by the virtual world's code-based regulations. Worse, a carte-blanche approach will increase search costs by requiring a buyer to determine where the code-based rights and attributes of a resource deviate from its legal rights and attributes.

Therefore, the efficient market justifications for virtual resource property rights can not be satisfied under either the carte-blanche or qualified approach to virtual resource property rights. The only way this justification may be satisfied is if legislatures and courts reach into the virtual worlds and mandate what specific rights and attributes virtual resources can take.

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Thom Yorke Dissing The Album Format Doesn't Mean 'Free' Business Models Don't Work

from the ok... dept

I believe that one of our frequent critics has been submitting a series of stories which s/he believes "disproves" the basics of what we talk about here. I don't know for sure that it's the same individual, as they always use different names, but the names are all of the same nature, and the comments are effectively the same mocking tone -- often included with a claim along the lines of "you'll never post this because it shows you're wrong." Later the same person (again, this is an assumption, but one with a high probability) has been posting comments insisting that "Mike always ignores my submissions because they prove he's wrong." The thing is, that's clearly not true. If you hadn't noticed, I often post stories suggesting something I've written about may not be true (and in some cases, I'd love to be proven wrong). The problem is that when you break down the stories, they don't prove anything of the sort. And, with this particular critic, s/he's either so incredibly misread the story or misunderstood what we wrote about, they didn't seem worth posting.

But since the onslaught continues, I figure why not spend one (and only) one post responding to two such recent submissions to explain. The first was the fact that, back at Bonnaroo, Trent Reznor announced to the crowd that it was Nine Inch Nails' last US show ever. The critic seemed to think this was proof that Reznor's brand of connecting with fans & giving them a reason to buy was a failure. Except... someone hadn't been paying much attention. First, the news wasn't new at all. Reznor had stated well before the tour even began that he was putting Nine Inch Nails on hold after the tour, but that he would continue with a variety of other musical projects. He also announced this same fact at other shows on the tour. The final statement was hardly anything new or anything of note. It certainly wasn't a sign that Reznor's efforts were a failure, but that he wanted to try something new -- a point he'd been making for quite some time. (Also, it's worth noting that since then, Reznor decided to do a few more NIN shows in the US, as he felt that Bonnaroo and the NIN/JA tour weren't the best way to go out).

The latest is a similar misreading, with a similarly misguided "nyah, nyah" comment from the critic. In this case, he pointed out that The Sun (hardly a standard for journalistic excellence) is reporting that Thom Yorke of Radiohead is saying the band doesn't want to do any new albums. Again, as with the statement above, this is not a new thing. Hell, just last week we linked to an interview with Yorke where he said the same thing. But, again, this critic seems to be confusing the fact that Yorke doesn't want to produce a certain product ("the album") with the idea that the In Rainbows experiment was a failure.

But that's not what Yorke is saying at all. In fact, Yorke has been complaining about the album format for some time. But that's a complaint about the format itself, not any sort of statement on whether or not In Rainbows was a success (which all the data shows it was a huge success). Furthermore, even the fact that Yorke wants to do something different doesn't mean the original experiment was a failure. Hell, in the very link this critic sent (the one above), Yorke states that In Rainbows was a success as an album. On top of that, in an interview last year, Yorke pointed out that it makes no sense to just keep doing the same thing, and even if they did another album, they wouldn't use the same method, because it had been done already, and they wanted to do something new. He was realizing, correctly, that you get more bang for your buck by doing new stuff, not just repeating the same old thing.

Nowhere does Yorke say that he won't still be producing music, or that they won't come up with new and innovative business models. But that he just doesn't like the album format. This is something a lot of artists agree with, and is hardly a condemnation of the original experiment.

There have been a few other submissions along these same lines, but rest assured, if I'm not posting your submissions (and we get about 50 to 100/day, and we only have so much time to write up stories), it's not because you've somehow "proved me wrong." It might be because the stories you submit don't actually say what you think they say... or... well... anything interesting at all.

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