Entertainment Industry Still Insisting That Gov't Protectionism Is The Only Way To Compete

from the oh-really? dept

A few months ago, we responded to an ill-informed opinion piece in the UK's Independent by Stephen Garrett, who runs a TV production house. In his essay, Garrett trotted out all the old falsehoods about how file sharing is the same as theft and that ISPs absolutely need to stop file sharing or the entertainment industry will die. On top of that, he relied on the tired old argument that file sharing "costs jobs" and those jobs are "needed" in these economic times. That's ridiculously laughable, of course. Inefficient industries and inefficient jobs (such as those supported by gov't monopolies) are exactly what's not needed these days. However, it appears that Garrett has not gotten the message (or, would simply beg for a gov't handout, rather than adjust his business model to match with the economic times).

Steven Hoy points out that the Financial Times is the latest UK paper to give Garrett space to put forth his opinions on the subject, and so we get yet another misguided rant about how the gov't and ISPs need to protect his own inability to craft a better business model.

Piracy (think Johnny Depp) and file-sharing sound harmless enough. But as it involves the widespread appropriation of intellectual property without payment, file-sharing is better described as file-nicking. It is theft. Hundreds of millions of pounds are haemorrhaging out of the film and TV industries, just in the UK. Jobs are being lost and companies will fold. This is not in contention.

Actually, it is very much in contention. It's almost pointless to reiterate this point, but if you can't understand the difference between someone making a copy and someone taking away a good, it's difficult to see how you should be given responsibility over running a business. It may be infringing, but it is not "theft." There is no "loss." Nothing is "missing." The only problem is a business model issue -- that is that you, Stephen Garrett, failed to give people a good enough reason to buy something. That's your fault, and your fault alone.

If any jobs are being lost, it's because you failed to manage your business properly, recognize the new market that technology has created, and learn to embrace it in a profitable manner. Others are doing so. You whine and ask the gov't for a handout.

In this parallel universe, consumer rights have acquired the status of a fascistic mantra. What the consumer wants, the consumer gets, even if he does not want to pay for it. Everyone has, to some extent, colluded in this fantasy, blocking out the advertisements while consuming -- for "free" -- newspapers, films, television shows and music on legitimate websites. Now, and this has happened very quickly, consumers assume they have a right to these things. Free, and forever. Unfortunately this fantasy is unsustainable.

Why is it unsustainable? It is, in fact, no different than any marketplace where competition exists. Let's say, for example, that you're a pizza maker, and it costs you $5 to make a pie, which you then sell for $10. Not a bad business. Now, a competitor comes along, and figures out how to make pizza pies for $3, and start selling his (which are just as good as yours) for $5. Now, you're in trouble. What do you do? Normally, you figure out how to compete, or you go out of business. You don't go crying to the gov't about how you're going to lose jobs if the gov't doesn't stop others from making the cheaper pizza. You come up with a better pizza or a more efficient way of making the pizza and you compete and get people to buy your pizza.

Economically speaking, this is the identical situation, because all that matters to a business is the margin. The fact that new technology has made it possible for your content to have a marginal cost of $0 is the same thing as someone figuring out how to make a pizza and price it at your marginal cost. It's just competition, and the answer is that you learn to compete, not that you blame the more efficient system or anyone who enables it.

All of these cost money to produce; in the case of TV dramas such as Spooks that my company produces, a huge amount. At the point when these creative products enter cyberspace, they are only partly paid for. Producers are dependent on revenues from DVDs and international sales, which piracy hits.

Of course all of these things cost money to produce. No one has said otherwise. But that's why you put in place a better business model that offers something unique that they can't get elsewhere for free. You use those unique scarcities to make a profit and recoup your fixed costs. That's just business. No gov't protectionism needed.

Piracy happens on the internet. The greater the bandwidth, the easier piracy is. We in the creative industries have asked (nicely) that the internet service providers should help tackle piracy by responding in a graduated way to customers of theirs identified as offering or downloading pirated material. The sequence would be along the lines of a warning letter, a "squeezing" of bandwidth, a further cut in bandwidth and then the ultimate sanction: a limitation of service.

I read that logic to be the same as "automobiles happen on roads, the nicer the roads, the more automobiles we have. We in the horse carriage industries have asked (nicely) that the road builders should help tackle automobile dangers by responding in a graduated way to drivers identified as speeding at rates beyond what a horse carriage can run. The sequence would be along the lines of a warning letter, a fine for speeding, a further ban from driving on roads, and then the ultimate sanction: a limitation on driving altogether."

Stopping progress because you're unable to adapt is no excuse.

Having the right to use the internet to access entertainment brings with it the responsibility not to act in a way that endangers every future film, TV show and music track. In particular, the UK government needs to use Tuesday's Digital Britain report to compel ISPs to work with us on a graduated system of penalties for file-sharers. Doing nothing bolsters the notion that nothing has value. The logical outcome is that, within our lifetimes, there will be nothing of value left.

No, Mr. Garrett. What you are asking for is for the internet to change to adapt to the way you liked to run your business. But that's not how the world works. Your unwillingness (or, perhaps, inability) to change is your problem, not the internet's. The internet was designed as a communications medium. You are trying to force it into being a broadcast medium, because that's the only business model you know, and you're unwilling (or unable) to learn how to create a business model on a communications platform. The only ones who should be "sanctioned" or face penalties is you, for your own inability to compete.

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Maybe The Pirate Bay Should Just Pay Hollywood For All The Advertising It's Done

from the this-isn't-going-to-end-well... dept

While The Pirate Bay ruling is now quite tainted, and about to go through at least an appeal if not a full retrial, it seems that the entertainment industry has wasted no time at all using the ruling to threaten a bunch of other sites, telling them that the're next if they don't shut down. In fact, some already are shutting down, as they'd rather not deal with a similar lawsuit.

Obviously, the entertainment industry still thinks it won this case. But, as we noted when the ruling came out, it's actually quite a loss for the industry, because it makes them think the legal response is working. Their reaction to the result highlights that. But look a bit closer at the details and you realize just how badly the industry is shooting itself in the foot (repeatedly). Lots of people have pointed to the fact that the Pirate Party in Sweden has rapidly grown in membership, making it one of the larger political parties in the country, and its political ambitions are growing.

But... even more interesting, as pointed out by Michael Scott is the news that The Pirate Bay itself has seen its own traffic and popularity grow noticeably thanks to the trial. Once again, the entertainment industry's strategy has only driven more people to find out about the site and what it does. What's amazing is that the entertainment industry should already know this. After all, what kicked this whole trial off was a big raid which briefly shut down The Pirate Bay, but which also put the site into the worldwide media, and massively increased awareness of the site... a trend that only grew as the press coverage continued.

By far, the biggest promoter of The Pirate Bay has been the entertainment industry itself. If the Pirate Bay guys owe the entertainment industry any money at all, it should be for all the promoting the entertainment industry has done for the site.

Meanwhile, as Hollywood stupidly celebrates all this as a victory, others are noting that the next generation of file sharing systems coming down the road will be nearly impossible for the entertainment industry to stop. The entertainment industry doesn't even realize what battle it's fighting, which is why it still thinks this trial has been a victory.

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Entertainment Industry Really Really Really Wants To Believe Pirate Bay Verdict Is A Win

from the this-is-what-we-call-delusional dept

As was easily predicted when The Pirate Bay verdict came out last Friday, the entertainment industry celebrated it as a big win. Amusingly, Arts+Labs, one of many, many entertainment industry lobbying groups (and run by a guy, Mike McCurry, who thinks that Google doesn't pay a dime for its bandwidth), was quick to praise the decision, with McCurry claiming that this is a turning point and that people will now realize that file sharing is "something both dangerous, criminal, and unfair." (I'll let the grammar nazis figure out which two of three things he meant when he said "both").

I love these proclamations of turning points. Especially since there's absolutely nothing to support it. We've seen the entertainment industry shut down Napster, Aimster, Morpheus, Grokster, TorrentSpy, OiNK and others over the years, and none have been "turning points" in the direction the entertainment industry wanted. In every case, things actually went the other way. Every time they shut down one of these services, another one shows up to pick up the slack and turns out to be bigger and more popular than the previous ones. In the meantime, over in Sweden, the ruling had generated large protests and thousands rushing to sign up to be a member of The Pirate Party. If it's a "turning point" for anything, it seems to be the opposite of the what the industry wanted.

I've said it before and I'll say it again: I don't think that most file sharing is legal or right (and I don't participate in any of it). But, millions of people who know that it's illegal have absolutely no problem taking part in it, and no "education" campaign or shutting down of a particular site or service is going to stop that. Continuing to pretend it will doesn't help the industry at all. What helps the industry is to stop denying that this is something that can be stopped legally, and finally moving on to experimenting with business models that work -- such as the business models that we've been describing here for over a decade. It's not that hard, no matter what entertainment industry lawyers (and it's always the lawyers) insist.

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Creative Destruction Happens Quickly; Those Who Wait End Up In The Rubble

from the just-a-warning dept

When we talk about the economics of industries that are in transition, such as the newspaper industry or the entertainment industry, we often point out the need to adopt new business models that embrace the economic realities those industries face. Regularly, supporters of those industries respond that it's folly to jump to a new "unproven" business model without real proof that the new business model will succeed -- especially when the old business model is still going strong. There's this belief that the companies in those industries can just hang on while everyone else experiments, and when a new business model is clear, they can comfortably make the switch and everything will be fine. And, it is true, that even disintermediated businesses have a history of sticking around and throwing off cash for a long time after the disruptive technology disintegrates their foundations.

Yet, as this article in The Atlantic points out with regard to the newspaper industry, when "the end" comes, it comes amazingly fast. It is true that old industries can hang on for a while, but they reach a sort of tipping point where suddenly everyone realizes that the emperor has no clothes. And, at that point, there really isn't any time to make the necessary shift to the new business model. Instead, there's just bankruptcy. So, sure, the record labels and the newspapers can wait it out and hang on until there's "proof" that some new business model makes sense. But, by the time that proof is there, their old business might not be.

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Entertainment Protectionism Doesn't Create Jobs, It Destroys Them

from the welcome-to-econ-101 dept

Reader Darren sent in a link to an "opinion" piece in the UK's Independent by Stephen Garrett, a managing director of a TV production house that apparently makes some popular UK TV shows (he names Spooks, with which I am personally unfamiliar). The article is basically no different than any of the thousands of poorly thought out and badly argued demands from entertainment industry execs for government protectionism in the face of the giant "internet threat." Garrett goes through all of these mistakes pretty early on: comparing file sharing to the theft of physical property, twisting basic logic around to suggest that ISPs bear the responsibility of stopping file sharing (rather than, say, the entertainment companies learning to adjust their business model in the face of a changing marketplace), and playing the old and easily debunked ripple effects card in discussing the "damages" done.

But rather than going through those same old tired arguments again, this seemed like a good opportunity to take on a later argument he makes, which I've heard from others as well:

At a time of economic downturn, saving jobs and securing economic activity is more important than ever. Investment in new forms of bringing entertainment to the public depends on legitimate sales of material, whilst lost opportunities of innovation is the tab picked up by those who do pay for content for those who refuse to do so.

This, like Garrett's earlier points, shows a fundamental misunderstanding of economics. Saving jobs and securing activity is not more important than ever if those jobs and that economic activity are inefficient, unnecessary or hinder other important economic activity from taking place. Historically, almost every example of government protectionism has been to protect exactly those types of jobs and economic activity, and the end result is disastrous. Rather than adapting to changes in the market, the protected industry holds onto the past, while those industries in other countries adapt, evolve and improve. In the end, the "protected" industry simply can't compete, the jobs are lost anyway, and it's much more difficult for the new industry in those countries to grow and catch up to foreign competitors.

Garrett's suggestion of special protectionism in the entertainment industry in the UK is exactly the wrong solution for the industry and would lead to many more problems down the road. I would hope that people in the government in charge of deciding this stuff would understand this -- but so far, the UK's Culture Secretary has shown himself to have difficulty grasping some basic economic realities, so don't be surprised to see him buy into this sort of argument.

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Useless Studies: Given The Choice Of No File Sharing Or No Internet, Guess What People Choose?

from the what-do-people-do,-not-what-they-say-they'd-do dept

A study by Entertainment Media Research claims that 72% of file sharers would stop file sharing, if sent a letter by their ISP threatening to cut them off the internet. This, obvious, supports the entertainment industry's effort over the past couple of years to get ISPs to act as their enforcers. It also ignores the fact that the EU has rejected such three strikes policies as a violation of users' rights. If someone puts a gun to your head and tells you to do something, plenty of people will probably do it, but that doesn't mean that it's right. Furthermore, what the study is really asking is, which of these two scenarios is preferable: no file sharing or no internet (which, by definition would mean no file sharing). Guess which people are going to say?

Unfortunately, results like this just mean that the industry will probably keep up its campaign to push for ISP enforcement, rather than actually coming up with better business models that embrace file sharing as promotion and a natural part of the market. They'll claim, of course, that this shows such an "educational campaign" will be effective -- ignoring the implicit "gun-to-head" part. However, as we recently discussed, there's little to indicate that the educational campaign has actually succeeded at all over the past decade, and there's little to believe that letters from ISPs will really be particularly effective in the long run. In a survey, of course people will say that they'll stop the activity to avoid getting cut off the internet. But that won't be because they think it's right or are comfortable with it. So the second a new, more secure or more underground method of file sharing comes along, they'll jump on that as well. If the entertainment industry wants to keep pursuing three strikes rules by promoting delusional studies like this one, that's it's choice, but it won't get the industry any closer to solving its business model problems.

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Entertainment Industry Again Says Everyone Else Must Protect Its Business Model

from the please,-please-help-us dept

The Progress & Freedom Foundation is hosting its annual tech policy conference in Aspen, and given that it's PFF we're talking about, it's chock full of entertainment industry folks without any input from anyone who questions the basic premise that the entertainment industry puts forth: that content creators need to charge for each individual copy of their works. Thus, it should come as no surprise that a panel of entertainment industry lobbyists fell into the usual routine of insisting that everyone else -- mainly ISPs -- be responsible for protecting the entertainment industry's business model.

The reasoning seems to be the same as always: the entertainment industry itself has found it too difficult to come up with a business model (even as those who have escaped the traditional bounds of the industry seem to be figuring it out on their own), and thus others simply must be responsible for propping up the business model. If you put them all on a panel together, of course, they're going to whine and complain that others have to fix their business model for them -- but that doesn't mean it's true. There are plenty of business models that they could embrace on their own, requiring no assistance from others. That they chose not to is their own mistake -- not the fault of companies in a totally separate industry.

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Actors Now Fighting For Royalties That Will Make It Harder For Big Studios To Compete

from the short-sighted dept

After the TV writers' strike from earlier this year, we noted that the final settlement actually was not in the best interest of the writers, even though they got much of what they wanted in demanding royalties from online usage of their content. The actors unions are now gearing up for that same battle, as well, as they, too, are demanding rights over online usage, including royalties and the right to demand permission before any of the works they appear in can be used online. It's difficult to feel sorry for Hollywood producers here -- as they very much brought this on themselves, convincing lots of people that they should get paid every single time any of their content was used. Thus, it's no surprise that the writers and the actors are now demanding the same rights.

However, just as it was wrong for the producers to be demanding a fee for every usage, so is it wrong for the writers and the actors to be demanding such a fee. All it will do is make it much more difficult, time consuming and expensive for any of that content to go online. And that will open up much wider opportunities for other content to go online instead, decreasing the overall value of the content made under these agreements. It's hard to fault the actors (like the writers) for looking out for their short-term interests and demanding the same sorts of things that the producers have demanded of everyone else -- but it's setting up a bad situation over the long-term, where the studios under these agreements won't be able to adapt to the changing media landscape.

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The International Whisper Campaign Against Fair Use

from the fairness-is-a-problem dept

The entertainment industry has a special talent for lobbying. Over the last decade of watching the industry maneuver, it's hard not to respect the sheer efficiency in its lobbying efforts. It happens over and over again. First, a story pops up somewhere suggesting some bizarre idea (copyright extension, ISPs should kick file sharers off their networks, the federal gov't should start prosecuting file sharing, etc.) and within months, suddenly there's legislation being offered in countries around the globe on that very topic. Clearly, the industry's lobbyists know how to create an effective world-wide campaign on a certain topic and get it done quickly without garnering much outside interest until it's too late. It would appear that their latest target may be attacking the concept of fair use in copyright. The industry has always had trouble with fair use, sometimes saying that it harmed innovation, while at other times even going so far as to say fair use doesn't exist (don't you miss Jack Valenti?).

William Patry notes that the latest is a worldwide "whisper" campaign to convince countries that "fair use" would violate international treaties, and thus, new copyright laws should not include fair use. That's why some of the recent copyright law proposals we've been hearing about have more or less ignored fair use. While some politicians know enough not to fall for this, many who are not familiar with the ins-and-outs of copyright are falling for the bogus claims that implementing fair use would somehow violate international treaties (a common tactic used to frighten politicians who know little about copyright). In the link above, William Patry, trashes the claims that fair use goes against treaties. While this may seem like a minor squabble, being prepared to respond to lobbyist fabrications is important. Otherwise, problems with copyright law will only get worse and worse.

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Japanese ISPs The Latest To Bow To Pressure From The Entertainment Industry

from the but-how-will-nuclear-secrets-be-leaked-now? dept

It's no secret that the entertainment industry's anti-piracy strategy over the past year or so has focused increasingly on putting legal or peer pressure on ISPs to handle the problem, and there have been quite a few "success" stories (though, the long-term impact may be a lot less successful). The latest is that a bunch of Japanese ISPs have agreed to cut off the users of the incredibly popular "Winny" file sharing application (found via Slashdot) if the entertainment industry alerts them to the IP addresses of excessively heavy users. The ISPs will try to send warning messages to the account holders, but then will cut them off (either temporarily or permanently) if they don't change their usage. It's not clear how carefully the ISPs will review the information sent to them by the industry, or what form any "appeals" process might take. This is unlikely to be particularly effective, but Winny has long been a target in Japan. The creator of the software was found guilty of violating copyright laws even though there are plenty of legitimate uses of the software. Still, however, the press likes to focus on the more sensational data leaks that happened via Winny, including Japan's nuclear secrets.

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