A year ago, we wrote about a fantastic episode of the radio program This American Life, which was all about lobbying. One part of it revealed just how much time our elected officials in Congress spend fundraising, and the numbers were somewhat astounding. Both major political parties have set up phone banks across the street from the Capitol (because it's seen as demeaning to do the calls directly from your Congressional office) and members of the House and the Senate spend a ridiculous amount of time there. The report suggested multiple hours each day on average, just focused on raising money for their re-election campaign. It's really quite incredible.

The folks over at MapLight recently used Federal Elections Commission data on the 2012 elections to work out just how much it costs to win a seat in Congress:

• House members, on average, each raised $1,689,580, an average of $2,315 every day during the 2012 cycle.
• Senators, on average, each raised $10,476,451, an average of $14,351 every day during the 2012 cycle.

No wonder they're hitting the phones every day. Of course, since these are averages, and averages can be skewed, it might help to dig in a bit, and thankfully, MapLight has supplied all the data in a handy dandy spreadsheet. Digging a bit deeper, we see that the campaign that got the highest amount of money is (no surprise) Elizabeth Warren's Senate campaign, which raised $42,506,349. That's a real outlier, as the second highest amount was less than half of that (Sherrod Brown, who raised $20,945,196). The lowest amount for a Senate campaign? Angus King, the Independent from Maine who raised just $2,964,323 -- though he's beloved in Maine and most people thought he had the campaign locked up from the beginning (which is a good thing, since we need more non-partisans in Congress, and King seems to be quite good). There were a few other campaigns around $3 million as well. At the very least, the data suggests that $3 million is the basic entry fee. The median for Senate campaigns pops out at $9,341,391 -- not far off from the mean. That median campaign was Dean Hellers.

On the House side, there were a few clear outliers, topped by Michele Bachmann's $25,894,721 -- though I assume much of that was raised back when she was running for President -- so not particularly representative. The other outlier on the high end: Speaker of the House John Boehner's $22,024,288. No one else came even remotely close. Third place was House Majority Leader Eric Cantor who took in $7,640,467. Note that Bachmann and Boehner actually raised more than any victorious Senate campaign, other than Warren's. The lowest amount raised? That would be Eni Faleomavaega (who?) who raised just $110,570. Of course, he's a non-voting "delegate" to the House, representing American Samoa's at-large district. Similarly, another non-voting delegate, Gregorio Sablan (from the Northern Mariana Islands) raised just $111,145. The lowest amount raised by a winning voting House member would be the $212,068 raised by Jose Serrano. The median amount in the House (including the non-voting members...) is $1,350,902 (for Rep. Janice Schakowsky). That's just a bit lower than the mean, which is probably the impact of the two massive outliers on the high end.

Of course, this data only looks at the winners, not the losers, and you could make a case that that data is pretty relevant as well. Still, the data makes it clear that successfully running for office requires a lot of money, which is why our politicians spend so much time fundraising. If all that fundraising kept them away from making bad laws, perhaps it would be a good thing, but, of course, part of the problem is that implicit in at least some of the fundraising effort is that these politicians will scratch the back of the donors -- which is how we end up in a world where so many politicians seem to focus on crony capitalism and rewarding those who fund their campaign, over what may be best for their actual constituents.

Picture yourself on vacation. You leave your hotel room, listening to the fully-licensed music in the lobby on your way out. You make sure not to ask the hotel staff for anything as you leave, lest something called a PARFF come after you. And as you're out frolicking on the beach, sucking in that gut and puffing out your chest (asexual insults FTW!), Zero Cool takes a small electronic device that costs less than your average Electronic Arts videogame and hacks your hotel room's lock, giving him access to all the tourist crap you bought in the past three days.

Now, I know what you're thinking. You're thinking that this couldn't possibly happen. After all, Johnny Lee Miller is probably still too busy spinning in place from the speed with which Eli Stone was cancelled after two seasons (and again, I'm reminded that Firefly lasted one. Sigh...) to be stealing stuff from your hotel room. And besides, it can't be that freaking easy to hack into a hotel lock, can it?

Yes, it can. Forbes has the story of hotel lock-maker Onity's reaction to Cody Brocious revealing at a Black Hat security conference how to hack the company's locks (found on over 4 million hotel room doors) with $50 worth of equipment.

The company’s response to that epic security bug has two parts–a quick fix, and a more rigorous one, both of which it plans to make available by the end of August: First, it’s issuing caps that cover the data port Brocious’s hack exploited, which can only be removed by opening the lock’s case. To further stymie hackers who would try to open the locks and remove that cap, it’s also sending customers new, more obscure Torx screws to replace those on the cases of installed locks.

The second fix is more substantial: Onity will offer its customers new circuit boards and firmware that ostensibly fix the problems Brocious demonstrated.

Not bad, right? We've certainly seen companies in the past react poorly when shown the security flaws in their products, attempting to silence those that point them out rather than just fixing the problems. So this would seem to be a step in the right direction, yes? Maybe, except for this:

But Onity is asking owners of some models of its locks of some to pay a “nominal fee” for the fix, while offering others “special pricing programs” to cover the cost of replacing components. It’s also asking its customers to cover the shipping and labor costs of making hardware changes to the millions of locks worldwide.

That's ridiculous. Onity sold hotels a product that had one job to do: keep the wrong people out of hotel rooms. The product does the job so poorly that $50 worth of equipment and a little technical know-how defeats it entirely. And now you want customers to pay to fix your bad device?

Even Brocious himself pushed back on Onity's statement.

Brocious criticized Onity’s move to put the financial onus for the fix on its customers after selling them what he’s described as fundamentally insecure products. While the free mechanical cap solution could create hurdles for hackers, he says that’s only a partial fix replacement until the lock’s circuit boards are replaced–something that’s not likely to happen if it requires millions of dollars in costs for Onity’s customers. “This will not be insignificant, given that the majority of hotels are small and independently owned and operated. Given that it won’t be a low cost endeavour, it’s not hard to imagine that many hotels will choose not to properly fix the issues, leaving customers in danger,” he writes.

It's an especially bizarre move in terms of public relations. How quickly do you think word will get around to other hotel owners, particularly small independent hotels, about how Onity designs their locks and treats their customers? This could be a win for Onity, if they go out of their way to properly fix their flawed product, but instead they appear to want to turn this into a double-dip of bad business.

Many years back, when discussing new business models that don't need to rely on copyright at a Cato event, an NBC Universal executive demanded to know how he could keep making $200 million movies. As we said at the time, that's asking the wrong question. It's makes no sense at all to start from a cost, and then derive back how to make that profitable. I could just as easily ask how can we possibly make $1 trillion movies in the future? The only thing that should concern Hollywood is how it can make profitable movies in the future. That could mean figuring out ways to make a profit on a movie that costs $200 million (and, certainly big blockbuster movies like Avatar sure seem to still be able to make plenty of money, despite being widely downloaded via unauthorized means). However, it might also mean making really good movies for a lot less money. Of course, we've suggested that in the past, and got mocked by Hollywood folks who seem to insist that any good movie has to cost a lot of money. That seems pretty presumptuous.

I'm a bit behind on this (the SOPA/PIPA stuff took up a lot of time), but filmmaker/actor/director/writer Ed Burns, who came to fame a couple decades ago with the massively successful indie film The Brothers McMullen, likely had every opportunity to follow the path of plenty of successful indie moviemakers: go mainstream. He could have hooked up with a big studio and been filming the latest of those $200 million bubble-gum flicks. And while Burns has appeared in a few big studio films (Saving Private Ryan), over the last few years, he's really focused on staying close to his indie roots. In fact, he's stayed so close to them, that you could argue his latest efforts are even more indie than his first film.

He filmed his latest movie, Newlyweds for a grand total of $9,000 ($2K for insurance, $2k for actors, $5k for food, transportation, and other costs) and was done in just 12 days -- but spread out over 5 months. He used a three-man crew, natural lighting, found locations that didn't require paying, and filmed with a Canon 5D camera. Of course, he's admitted that the editing and post-production work really brought the overall budget up to about $120,000 -- but that's still an incredibly inexpensive movie. He's also focused on using Twitter to market the film. In that interview, he notes that if you connect with your fans, they'll "work on your behalf" to help you do stuff. He's distributing it using VOD, and it seems very likely that it will make a nice profit (if it hasn't already), just given the low budget, and all the buzz the film has been getting.

Of course, no one is saying that all movies should be made for $9,000 (though, I'm sure some of our regular critics will pretend that's what I'm saying). But there is an argument that lots of really great movies that would never have been made before, now have the ability to get made, distributed, watched (and be profitable!) in a way that simply wasn't possible just a few years ago. Frankly, I'd rather focus on ways to help more filmmakers be able to make movies like this, than worry about how some exec at NBC Universal defends his decision to waste $200 million on the next "reboot" of some franchise no one cares about.

The MPAA is famous for throwing around all sorts of completely bogus numbers when it comes to the "costs" of online infringement. Even parts of the US government have mocked the MPAA for its way of calculating "losses" from infringement. In one case, the calculation was so ridiculous that even the MPAA had to admit that it had fudged the numbers. However, the folks over at TorrentFreak decided to see if they could come up with a more reasonable calculation by doing a thought exercise: what if everyone who shared unauthorized movies and TV shows via BitTorrent, suddenly switched to Netflix instead? How much more revenue would that bring in?

The answer? Not a hell of a lot. Now, the report makes a large number of assumptions -- all of which are laid out directly, and whenever possible, they sought to use a number that favored the MPAA. So they assume that every download is a "lost sale" and are extremely quick to inflate how much BitTorrent traffic is movies and TV. They also assume that all BitTorrent traffic is infringing. Again, the idea is to be as favorable as possible to Hollywood. In the end, they find that it's possible the studios might have made about $60 million more under this simplistic scenario. They then point out that the MPAA's own budget is greater than that. We can quibble about the methodology, but assuming that the methodology stands up, it certainly raises significant questions about the true size of the "issue."

Last month, in talking about an episode of Planet Money with James Bessen on it, we mentioned his new research suggesting that patent trolls evaporated half a trillion dollars in wealth. Now that research, done with Michael Meurer and Jennifer Ford has been released (thanks to Tim Lee for the pointer): The Private and Social Costs of Patent Trolls.

Note that this isn't trying to count "losses" like the entertainment industry in trying to make up numbers about what would have sold. This is a direct observation on value of companies sued by patent trolls, and looking at how much of their value evaporates in response to the lawsuits. The $500 billion number represents a total over 20 years -- from 1990 to 2010. But, even worse (and not surprisingly), the numbers show that this number has been going up. Over the last four years, the total decimation of value from patent troll cases has averaged over $80 billion per year. In other words, over $320 billion of that $500 billion came in just the last four years.

Does this mean that some of this money is being transferred to actual inventors? Nope. Again, the research finds otherwise. The incentive to inventors has not increased by nearly the same amount. The research points out that licensing companies could add value -- but that under the current system, they do almost certainly do not. And as the problem is getting worse, all Congress can do is pass some hapless reform bill that doesn't even deal with the patent trolls issue at all.

While I've already written about the hearings for the Copyright Office concerning copyright on pre-1972 sound recordings, but I wanted to call out one particularly egregious and ridiculous statement from the RIAA. The RIAA's Jennifer Pariser claimed that there's no value to a work in the public domain. Apparently Pariser is unfamiliar with the works of Shakespeare. Or Beethoven. Is she serious? I mean, you could make the argument that it makes life more difficult to sell those works for the labels she represents, but those works have tremendous value. Pariser, of course, is famous for making ridiculous statements, sometimes under oath. Back when she worked for Sony-BMG she made some statements, on the stand and under oath, in the Jammie Thomas trial that were blatantly untrue. Only much later, after the jury had ruled, did the RIAA admit that Pariser "misspoke" while on the stand. One hopes she "misspoke" here as well, but I get the feeling she actually believes the blatantly incorrect statement she made.

This should hardly come as a surprise, but a new paper that analyzes money being spent on Homeland Security finds that it's incredibly wasteful (found via Julian Sanchez). You can read the full report (pdf) by John Mueller and Mark G. Stewart, which probably confirms what most people were already thinking. Basically, Homeland Security has ratcheted up spending at a massive rate, and there's little to no effort to judge that spending against the actual risk reduction. That is, there's simply no one doing any sort of real cost-benefit analysis on this spending. The report seeks to do some of that, and what it finds isn't pretty. From the abstract (with my emphasis):

The cumulative increase in expenditures on US domestic homeland security over the decade since 9/11 exceeds one trillion dollars. It is clearly time to examine these massive expenditures applying risk assessment and cost-benefit approaches that have been standard for decades. Thus far, officials do not seem to have done so and have engaged in various forms of probability neglect by focusing on worst case scenarios; adding, rather than multiplying, the probabilities; assessing relative, rather than absolute, risk; and inflating terrorist capacities and the importance of potential terrorist targets. We find that enhanced expenditures have been excessive: to be deemed cost-effective in analyses that substantially bias the consideration toward the opposite conclusion, they would have to deter, prevent, foil, or protect against 1,667 otherwise successful Times-Square type attacks per year, or more than four per day. Although there are emotional and political pressures on the terrorism issue, this does not relieve politicians and bureaucrats of the fundamental responsibility of informing the public of the limited risk that terrorism presents and of seeking to expend funds wisely. Moreover, political concerns may be over-wrought: restrained reaction has often proved to be entirely acceptable politically.

In seeking to evaluate the effectiveness of the massive increases in homeland security expenditures since the terrorist attacks on the United States of September 11, 2001, the common and urgent query has been "are we safer?" This, however, is the wrong question. Of course we are "safer"--the posting of a single security guard at one building's entrance enhances safety, however microscopically. The correct question is "are the gains in security worth the funds expended?" Or as this absolutely central question was posed shortly after 9/11 by risk analyst Howard Kunreuther, "How much should we be willing to pay for a small reduction in probabilities that are already extremely low?"

Among other things, the report looks at everyone's favorite DHS boondoggle, the naked radiation scanners at the airport by the TSA. Apparently, DHS was directly told by the GAO to study the cost-benefit and it refused to do so. The same is true of other DHS expenditures:

Indeed, at times DHS has ignored specific calls by other government agencies to conduct risk assessments. In 2010, the Department began deploying full-body scanners at airports, a technology that will cost $1.2 billion per year. The Government Accountability Office specifically declared that conducting a cost-benefit analysis of this new technology to be “important.”12 As far as we can see, no such study was conducted. Or there was GAO’s request that DHS conduct a full cost/benefit analysis of the extremely costly process of scanning 100 percent of U.S.-bound containers. To do so would require the dedicated work of a few skilled analysts for a few months or possibly a year. Yet, DHS replied that, although it agreed that such a study would help to “frame the discussion and better inform Congress,” to actually carry it out “would place significant burdens on agency resources.”

Of course, from a political perspective, this makes perfect sense. It's all game theory. You don't get praised and promoted for doing a cost-benefit analysis that saves taxpayer money from wasteful and useless projects if a terrorist attack happens. So the end result is that the incentives for everyone at DHS to just spend as much as possible in the hopes that it stops something, knowing that if anything bad happens (as it inevitably will), all of the blame will go towards anyone who said "we shouldn't do project x that would have prevented attack y."

Of course, the real problem is that this is exactly what our enemies would like. They don't care about "terror" for the sake of terror. They want the US to spend itself silly to completely bankrupt the country. And it appears to be working. That doesn't make me feel any safer at all, no matter what the cost.

Recently, as the BPI was arguing yet again that ISPs were exaggerating how much it would cost to implement a three strikes type regime in the UK (which would be required under Peter Mandelson's Digital Economy Bill, aka DEB), we wondered if BPI would be willing to foot the bill, since it's so sure that it'll be cheap. After all, since the whole law is designed to prop up BPI's own business model, it seems to only make sense that BPI should be the one paying for it, right?

Turns out that we're not the only ones to think so. In a recent post about the DEB, Jeremy Silver (who I had the pleasure of meeting at Midem) points out that BPI is in the troubling position of trying not to make it sound so cheap that it's expected to pick up the bill, while still arguing that it's not so burdensome for ISPs to pick up the bill. But, various proposals actually are suggesting that BPI should pay the cost:

The Digital Economy Bill that is wending its glacial way through the UK parliament has produced an interesting row between the BPI (representing the interests of the major record labels) and the ISPs, telco's and mobile network operators. They are arguing over who should pay how much to fund remedial measures to clamp down on illegal file-sharing. The BPI is in a tough place since the cheaper they argue the cost will be, the more the ISPs respond by saying "well then you can pay for it." Minister Stephen Timms recently suggested the split should be 75/25 (with the BPI paying the greater amount).

Honestly, I fail to see why BPI shouldn't have to pay 100% of the cost (or, perhaps in conjunction with other copyright industry organizations) if such a plan goes through.

Silver recognizes the bigger issue of course, which is that almost no one actually thinks that a three strikes plan "will make a blind bit of difference," and that this whole game is really about rights holders "wasting their money by trying to control file-sharing." On that we agree. However, I have to disagree with his suggestion that the answer is a collective licensing regime, because I think that introduces way too many questions where it's not needed. A collective licensing scheme puts yet another bureaucracy in the middle, just for the music industry (well, not for long, because then suddenly everyone else wants one too: the movie industry, the software industry, the video game industry, the newspaper industry, etc. -- and why should it stop there, new industries will jump on board too: don't we need a collective license for people who view blogs too?). As it stands, I just think that we're finally seeing free market business models that are working, and it's way too early to jump in and distort the market with a collective licensing scheme.

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.

In the initial news about Apple going DRM-free, I saw it reported that Apple would let you convert your existing files to DRM-free. However, what was left out of the reports I saw (though, people in our comments pointed it out) was that Apple wants to charge you $0.30 for the privilege of getting rid of the DRM. Of course, you can just get rid of the DRM yourself if you don't mind going through the conversion process (though, even that's a bit of a pain). Either way, it's pretty lame to charge people to get rid of DRM. Why even offer that as an option? Are people really going to pay more?