Techdirt. Stories filed under "costs"

Verizon Charging You More, As Bandwidth Costs Them Less

Timothy Geigner — Fri, 25 Jan 2013 06:08:56 PST

As we just recently discussed, broadband providers appear to finally be willing to give up their pretend need for data caps due to the pretend costs of delivering service. The story they told essentially was that, without data caps, congestion would clog the interwebz tubes and that laying bigger tubes was way too costly. Perhaps noteably, this rarely resulted in actual hard caps on data, but rather provided a convenient excuse to charge more for more data service, regardless of the effect or cost of delivering that service.

Now Verizon's 4G LTE money-making machine is giving us a glimpse into exactly how profitable providing bandwidth is becoming as the cost for delivering service drops and prices to consumers go up.

Verizon (VZ) posted a pretty impressive holiday quarter (one-time charges aside) with a good outlook on Tuesday, and the company’s share price rose as a result. There were also plenty of interesting takeaways from the carrier’s earnings call, but The New York Times’ Brian X. Chen zeroed in on one item of particular interest. Verizon launched new “Share Everything” plans last summer that make smartphone data more expensive for many users. The best thing about these plans for investors — and, not coincidentally, the worst thing about the plans for subscribers — is that Verizon is now making more money off of smartphone data as costs associated with transmitted that data are falling.

It really doesn't get much simpler than that. The 4G LTE network is efficient to the point that delivering the service costs less than the 3G network, yet the price to consumers is going up. To be clear, the problem here isn't that Verizon is making money. Rather, the problem is that this comes from the same company that built a business model around low caps and high overage costs while also claiming that caps were the sign of a "competitive market." For those of you playing along at home, it's precisely because of a lack of competition that Verizon can at once have its costs drop while raising prices on its services. Were there more competition, someone new would compete on price or value of service. As it stands, Verizon can use their faster service and low caps to further the aforementioned business model.

As an added bonus, Chen noted that Verizon’s faster data networks also cause users to eat through their data allowances more quickly. This eventually prompts them to buy more expensive plans with higher data caps, which of course net Verizon even more cash.

As a Verizon customer myself, these kinds of signs that there isn't enough competition for my dollar are quite frustrating. On top of that, the model is specifically designed to provide a great service and then drop a bunch of obstacles in its path... it's maddening.

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Yes, It Would Be Prohibitively Costly For Google To Offer Google Fiber Everywhere, But It Shouldn't Have To

Mike Masnick — Wed, 12 Dec 2012 09:03:38 PST

A bunch of folks have been sending over Business Insider's coverage of a Goldman Sachs Report concerning Google Fiber, and how much it would cost to roll it out nationwide. The estimate from BI, which is what lots of people are quoting, is that it would cost $140 billion. From the quote presented in the article, it's not clear if the Goldman Sachs report actually uses that number of not. The only number actually quoted is that it would cost about $70 billion to cover less than half, so I don't know if the BI reporter is just extrapolating in a manner that seems ridiculous (if covering half the country is $70 billion, that does not mean covering the other half is also $70 billion -- it doesn't work that way):

Building out the infrastructure will be expensive. In his September 17 report Still Bullish on Cable, although not blind to the risks, Goldman Sachs Telco analyst Jason Armstrong noted that if Google devoted 25% of its $4.5bn annual capex to this project, it could equip 830K homes per year, or 0.7% of US households. As such, even a 50mn household build out, which would represent less than half of all US homes, could cost as much as $70bn. We note that Jason Armstrong estimates Verizon has spent roughly $15bn to date building out its FiOS fiber network covering an area of approximately 17mn homes.

Of course, even if we accept this number to be true -- even though that seems unlikely to be the case -- it seems to miss the point. Google has been pretty clear all along that the goal of the Google Fiber project was not to turn Google into a national broadband competitor, but to drive others to really up their game by showing what's possible: super cheap, super fast broadband with friendly customer service.

And, while Google shied away from its initial promise to have its network open for other services to compete, it still seems like that might be a better way to offer such a broadband. That is, rather than dumping the expense entirely on one company, imagine if it were split up among a bunch of companies (or even individuals), with a promise of openness and competition at the service level, rather than at the infrastructure level. In effect, this is what is happening down in Australia, via government fiat, in which it's building out a national fiber network, with plans to have it open for competition at the service level. That way, the costs of the infrastructure are spread out, but it opens up massive new opportunities for service providers if they provide good service.

The problem -- and the reason such a thing is unlikely to move forward -- is, once again, this insistence by companies that there's more value in owning the pipe entirely, and keeping it locked up and scarce, even if it means less overall efficiency and less overall opportunity. A long term view would recognize that investing in the best network possible, but sharing those costs, and then letting the real competition happen at the service level, would benefit everyone. Instead, we end up with fighting over slow, limited and fragmented networks. It's too bad.

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New Patent Reform Bill Defines Software Patents; Targets Trolls

Mike Masnick — Wed, 1 Aug 2012 14:05:32 PDT

We've discussed the "America Invents Act," a patent reform bill that passed last year after years of Congressional fighting. As we (and plenty of others) noted at the time, for all the hyperbole around the bill, it completely ignored nearly every problem with the patent system today, and seemed almost entirely useless. Our worry, then, was that this would kill off any appetite for Congress to take on the real problems of patents today. So it's good to see that a new patent bill has been introduced -- by Reps. Peter DeFazio and Jason Chaffetz, with a very, very minor change to patent law: it would allow those sued for hardware or software patents the ability to recover litigation costs if it's determined that the suing patent holder "did not have a reasonable likelihood of succeeding."

In other words, this is a bill targeted very directly at the pure trolls: the patent holders who sue companies with no real intention of taking a case to court, but rather just to get them to pay a settlement fee to avoid the (expensive) court costs in defending a patent infringement claim (which is quite frequently much more expensive than the settlement options):

Notwithstanding section 285, in an action disputing the validity or alleging the infringement of a computer hardware or software patent, upon making a determination that the party alleging the infringement of the patent did not have a reasonable likelihood of succeeding, the court may award the recovery of full costs to the prevailing party, including reasonable attorney's fees, other than the United States.

But what's much more interesting about this is that it seeks to carve out a specific definition for software patents. I know that in software circles there's been plenty of talk over the years about the problems of software patents, and many don't believe that software should be patentable at all. However, as defenders of the patent system like to point out, there's no such "thing" as a "software patent" defined in the law, so it would be difficult to say software isn't subject to patents. Well... this bill defines software patents:

SOFTWARE PATENT.--The term 'software patent' means a patent that covers--

"(A) any process that could be implemented in a computer regardless of whether a computer is specifically mentioned in the patent; or
"(B) any computer system that is programmed to perform a process described in subparagraph (A).".

Given the massive fight in previous years over patent reform, I fully expect to see patent system supporters throw a massive hissy fit over this very, very minor change to patent law, but it's so minor that I'm at a loss as to how they'll have any compelling argument. The only reason I can think to be against the changes here is if you're in the business of abusing the patent system to shake down innovators. I actually think that supporters of the patent system, such as pharma companies, should support this kind of change too. If the patent system can successfully slice off the problems associated with software patents, it means that there will be less pressure for massive patent system changes.

Of course, if you want real patent reform that takes on the larger issues that impact all sorts of areas (beyond just software), we've made clear our suggestions -- though there doesn't seem to be any appetite in Congress to make such major changes in the near future.

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Time Warner Cable Is Ready For A 'Conversation' About Rising Costs, But Not The One You Want To Have

Mike Masnick — Mon, 30 Jul 2012 03:09:50 PDT

It's no secret that lots of internet users hate the idea of metered broadband. It adds serious mental transaction costs in using the internet ("will watching this movie actually cost me lots of money in overage fees?") and generally limits innovation by limiting what you can do online. On top of that, there's little evidence that such metered bandwidth is necessary (contrary to the claims of marketing people, when you talk to the tech people, they don't see any real congestion problems). However, the broadband providers absolutely love the caps because they basically allow them to make more money without having to actually invest in expanding their infrastructure.

So it's interesting to see that Time Warner Cable has set up a site, called Time Warner Cable Conversations, which they claim is a conversation with consumers about how to "fight rising costs." Except... they really only want the conversation to be about rising costs caused by what the TV networks charge to carry the channels. If you want to talk about fighting rising costs by arguing against broadband metering, well, too bad. The whole site is moderated and limited and it appears that only conversations about TV networks and such are allowed. That's not much of a "conversation" now, is it?

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Don't Think The 'Costs' To US Businesses From Bogus Claims Is Real? Read This

Mike Masnick — Wed, 18 Jan 2012 15:30:42 PST

We've discussed at length how SOPA and PIPA put additional compliance costs and liability on US companies -- something supporters of the bills still insist is untrue. However, MetaFilter founder, Matt Haughey, has explained his reasons for supporting the boycott/blackout by telling a specific story of some of the mess he needed to go through to deal with a totally bogus DMCA claim. In my recent debate with Steve Tepp from the US Chamber of Commerce over this issue, Tepp insisted that because there are no monetary damages possible for intermediaries, there is no real "liability" for those companies. Tell that to Haughey, who relates his experience:

I've never written about my problems behind the scenes with the DMCA, a similar piece of law written to stamp out piracy but in the decade since it passed has morphed into a blunt instrument to silence websites for a variety of reasons. I was stuck in a Brazil/Catch-22 situation a little over a year ago due to a five year old song in MetaFilter Music that shared a filename with a leaked (November 2010) unreleased Michael Jackson song. Sony music group employed a dumb simple bot called "Web Sheriff" that crawled the web looking for filename matches and when found, alerted IP range owners of infringing works being offered by their customers. I got slapped with a 30 day ultimatum to immediately take down the uploaded song on MeFi Music or find my hosting account closed and banned, and all of MetaFilter erased in the process. The claims were ludicrous and I informed my host of the impossible nature of the claim but was told per DMCA guidelines I had to either file a counterclaim notice with Sony/Web Sheriff or ask them to issue a formal retraction.

I didn't want to waste money on lawyer time by filing a counterclaim and prolonging the fight so instead I had to contact Web Sheriff directly to request a retraction. This took many back-and-forth emails, and thanks to Web Sheriff being in London, added days to the process of exchanging emails. Eventually I got a human at the company to look at the dates on my files and agree it was not a Michael Jackson song. The formal retraction took nearly two weeks to secure and convince lawyers for my host that it was adequate for removing the DMCA claim. That's two weeks into a 30 day window before I lost my rack of servers and hosting account completely. I'll never forget last year when I went through this because it was two of the stupidest weeks of my life, all because of some problematic laws granted new powers to copyright holders and I had to engage in a prolonged legal fight thanks to a mistake made by a bot.

Don't think that kind of thing takes money, time and connections to handle reasonably well? The compliance costs are very, very real -- and that's just a single bogus DMCA notice. Imagine what happens when there are many -- and companies are dragged into various court battles. To say there's no compliance cost or liability under these bills is pure folly.

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CBO Says PROTECT IP Will Cost Taxpayers Over $10 Million Per Year To Censor The Internet

Mike Masnick — Thu, 18 Aug 2011 13:30:00 PDT

The Congressional Budget Office (CBO), who tries to estimate the cost to taxpayers of all new laws proposed by Congress has put out its report on the PROTECT IP Act, noting that it will cost taxpayers $47 million (pdf) from 2012 to 2016. Specifically, the CBO notes that the Justice Department would have to go out and hire 48 new people (22 special agents and 26 support staff) to act as Hollywood's censor police -- and that the annual cost will run about $10 million. Separately, the CBO notes that outside of the cost for taxpayers, the law would certainly impose costs on a variety of tech companies, by placing liability and requirements on them in regards to sites picked by Hollywood and the Justice Department to censor (you know, sites like that bastion of "piracy," the Internet Archive, which Hollywood has already put on its evil pirates list). However, it does not estimate that additional cost on those companies, since it will depend heavily on "future judicial proceedings."

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AT&T Accidentally Reveals That It Doesn't Need T-Mobile At All

Mike Masnick — Fri, 12 Aug 2011 15:57:39 PDT

One of the key talking points from AT&T in support of the T-Mobile merger is that it "needs" T-Mobile's spectrum in order to expand its planned 4G/LTE networks to cover 97% of the population. And, there's no doubt that having T-Mobile's spectrum will make it easier, but that's not the same as it being necessary. As Broadband Reports has been pointing out for a while, Verizon has less spectrum than AT&T but can cover the same 97% of the population with it. Apparently a lawyer for AT&T accidentally posted a document to the FCC's site that more or less admits that AT&T doesn't need T-Mobile's spectrum, and that it could invest $3.8 billion to catch up to Verizon in terms of LTE coverage. $3.8 billion is a fair bit of money, but it's a hell of a lot less than the $38 billion that it's spending for T-Mobile. Yes, AT&T also gets T-Mobile subscribers with that, but it certainly raises questions about AT&T's claims that it would be too "costly" to invest to get to 97% coverage with its existing spectrum. As BBR notes, the timing of the letter also suggests that AT&T knew it was planning to buy T-Mobile when it decided to claim that it would "not" build out its network, perhaps recognizing that this would help give it a talking point for why the merger should be allowed.

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How Much Does It Cost Taxpayers To Implement Three Strikes?

Mike Masnick — Mon, 20 Jun 2011 08:22:34 PDT

With the recent UN report condemning three strikes laws that kick people off the internet based on accusations (not convictions) of copyright infringement as a civil rights violation, there's been a lot more attention paid to the reasonableness of such laws. Of course, there are other factors to take into account as well, including the general cost to the taxpayer. Over in the UK, James Firth filed some Freedom of Information requests with the UK government to try to understand how much such things are really costing. He got an answer from Ofcom, the telecom/ISP regulator, who noted that it's expected to have spent about £5.9 million (or just under $10 million) by the end of this year on implementing the digital copyright enforcement measures in the Digital Economy Act (which are mostly about a three strikes plan). Firth notes that this is just one part of the government's costs, and he has other FOI requests out for other parts. He also notes, per Ofcom, that the agency hopes to get this money back from fees from copyright holders making use of the process, but that's not guaranteed. Definitely an interesting bit of information to explore, which usually gets ignored in these discussions.

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Reminder: Please Help Us Calculate The 'Cost' Of Overprotective Copyright Laws

Mike Masnick — Mon, 13 Jun 2011 16:01:00 PDT

A quick reminder here. After a Senate-commission report by the US ITC concerning "losses" from China due to intellectual property infringement, we noted that the methodology was ridiculous. The ITC simply went out and asked some of the biggest companies who rely on IP how much they thought they "lost," and used that to extrapolate a number. In what world is it the appropriate methodology to ask those who would financially benefit the most from greater protectionism to provide accurate data about the need for that protectionism? However, if that methodology is considered credible for the US Senate and the ITC, we figured we might as well use the identical methodology to calculate the "loss" the public has dealt with due to overprotective copyright laws. Of course, unlike the ITC, we actually asked people to "be reasonable." You can provide your own thoughts in the form below: Loading... The initial response has been fantastic -- with many more responses than we expected. On top of that, a wonderfully large percentage of them included detailed, and thoughtful, explanations of their calculations and reasoning. There have been, not surprisingly, a few ridiculous claims (i.e., trillions of dollars) that we'll be removing from the calculations, because we're (mostly) serious here about trying to come up with a number. Either way, please spread this around, as the more data we get, the better the results will be. Thanks!

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Please Help Us Figure Out How Much The Public Has 'Lost' Due To Overprotective Anti-Copy Laws

Mike Masnick — Tue, 24 May 2011 09:13:30 PDT

We recently posted about an ITC report that, among other things, estimated that US companies "lost" $48 billion due to "piracy" in China. This $48 billion number generated plenty of headlines, and since the report was requested by the Senate, you can bet that it will be used politically. The problem, however, was that the methodology was ridiculous. Rather than using any sort of objective measure, the ITC went out and asked 5,000 businesses who were in "IP-intensive fields" what they thought their "losses" were, and then extrapolated out.

It should be obvious why this is ridiculous. It's asking the most biased party, who would benefit the most from government protectionism in their favor, to give totally self-reported details of the "harm" that happens without increased government protectionism, with no attempt to reality-check those results.

One of our critics in the comments responded with a fallacy, suggesting that somehow we should not be allowed to criticize the clearly specious methodology here, without offering an alternative study and results of our own. Of course, to point out that a study's methodology is wrong does not mean that you need to supply your own numbers. And, of course, we regularly point to plenty of good studies on these kinds of subjects as well.

However, an anonymous commenter made the absolutely brilliant suggestion that we should create our own study, using their methodology to calculate how much the public loses each year due to overprotective anti-copy laws. And, so we are. Just as the ITC asked those who had most thought about their "losses" from infringement, I think it's fair to suggest that the readership here includes plenty of people who have thought deeply about the public's losses from overprotection. Thus, I'm hoping we can put together a similar corpus of data from which we can extrapolate a similar number about the public's losses. You can input your own estimate of your losses here: Loading... Now, obviously, this methodology is ridiculous, but if it's good enough for the ITC and the US Senate, it seems that it must be good enough for the counter study. It seems only reasonable that those who accept the results of the ITC study must also accept the results of our study, or admit that both methodologies are simply ridiculous.

Of course, to make this work, we really would like to get as much data as possible (and we really do want you to try to answer the question as honestly as you can -- i.e., don't just make up some crazy large number, but think about it). However, please also spread this post by letting other communities of folks who likely have thought about these issues know about it, so that we can really collect enough data to make this meaningful (in as much as you can make a totally ridiculous and bogus methodology meaningful).

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Drug Companies Overestimate Cost Of Developing A New Drug By Merely $1.26 Billion

Mike Masnick — Wed, 30 Mar 2011 08:07:30 PDT

It's one of those numbers that comes up every single time we talk about the pharma industry: the claim that it costs $1.3 billion for pharma companies to develop a new drug. In fact, in our recent discussion on the FDA banning drugs that have been on the market for decades, it didn't take someone long to toss out such a number (they used $1.2 billion, but $1.3 billion is the "standard" these days -- just a few years after it was $800 million). Of course, every time people point this number out, I point to the excellent research by Merrill Goozner who did a massively thorough debunking of the $800 million number seven years ago, showing that the true number was closer to $35 million.

And yet, the $800 million number has lived on, boosted by inflation to $1.3 billion.

And it's still bunk. Gerd Leonhard points us to some new research that appears to have dug deeper into the question today, and found (once again) that the $1.3 billion claim is total bunk and the real number is more like $55 million -- based on the same data used by the study used to support the $1.3 billion number. In fact, they point out that it appears the pharma industry and those seeking greater protectionism appear to be overestimating the actual cost of drug development by $1.265 billion.

Now, there are some reasonable quibbles with the lower number as well, but there's a growing body of evidence that the real number is a lot closer to the lower one than the higher one. There are certainly some outliers, but the idea that the average cost to develop a new drug is over a billion dollars, and therefore pharma companies need special extra protection is bunk and certainly shouldn't be cited any more.

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BPI Insists UK ISPs Overstating The Cost Of Three Strikes; So Will BPI Pay The Difference If Wrong?

Mike Masnick — Thu, 21 Jan 2010 10:57:00 PST

The UK's version of the RIAA, BPI, has been a very, very strong supporter of Peter Mandelson's Digital Economy Bill -- a position that has even some of its members resigning in disgust. In the past, BPI has also implied that ISPs already have some sort of legal obligation to stop file sharing and that they rely on unauthorized file sharing to fund their own business model. As the battle over the bill heated up, many ISPs pointed out that the cost of implementing the bill's requirements would be quite high. On top of that, the UK government did its own study and found that the costs were even higher than the ISPs estimated and the cost of implementing the bill would outstrip even the most ridiculous of BPI's estimates of "losses" from file sharing.

Of course, BPI can't accept those numbers, so its commissioned its own study which (of course!) claims that the cost to ISPs would be tiny. Hell, they'd barely be noticeable at all.

Well, if BPI is so sure of this, how about it steps up and puts some money behind that claim. I would imagine that ISPs would feel a bit more comfortable about supporting the Digital Economy Bill if BPI promised to pay any of the fees above and beyond what its own estimates are for implementing the plan. According to BPI's analysis, it would cost ISPs all of £13.85 million ($22.5 million) in the first year, £9 million ($14.6 million) in the second year and just £3.45 million ($5.6 million) in the last year. Hell, if it's such a small cost, how about BPI pays for the whole thing. Only fair, right? After all, the whole purpose behind the plan is to prop up BPI members' business models because they'd rather not adapt. Seems only right that they should pay for it.

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Are IT Failures Costing $6.2 Trillion Per Year?

Mike Masnick — Mon, 11 Jan 2010 21:52:13 PST

I'm always quite skeptical about huge numbers that come out of studies, such as the "losses" claimed by the entertainment industry due to piracy. So I was pretty skeptical of a story (found via Slashdot) claiming that IT failures cost $6.2 trillion per year worldwide. If true, that would be a staggering figure. I have no doubt that IT "failures" are costly, but that number seems extreme. Just glancing over the report itself, it's definitely not based on any kind of stringent methodology, and seems to count any IT project failure as a total loss, and then adds in "indirect costs" which sound suspiciously like "ripple effects" which, as we've demonstrated before are actually ways to double- or triple-count the same dollars over and over again. It seems that many others see huge problems with the original report as well, even to the point of suggesting that its orders of magnitude off.

While the debate rages on over how to properly count the "cost" of such failures, I'm beginning to wonder how useful such a number is. Isn't a more useful discussion on how to prevent or minimize the impact of any such failures? The aggregate number may look good in being able to see some big number, but aggregate numbers can hide important details inside. For example, back in the early (and even late) 90s there were lots of reports about how computerizing your business was not shown to have added any productivity. A poor conclusion from this was that computering your business was not a smart idea. But the problem was that this was aggregate data. It failed to realize that many, many businesses had boosted productivity through the use of computers, and many of the large failures that wiped out the aggregate "gains" were from a few big businesses that did a really poor implementation. It didn't mean that computerizing was necessarily a bad idea, but that some of the biggest early players just did a bad job of it.

So, if we're going to be discussing IT failures, why not step away from that aggregate info and try to focus in on ways to actually minimize the impact of whatever IT failures might occur?

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UK Government Report Shows That Digital Economy Bill Will Cost More Than Highest 'Piracy' Estimates, Drive 40,000 Offline

Mike Masnick — Mon, 28 Dec 2009 14:19:23 PST

As the UK considers Peter Mandelson's Digital Economy Bill, a UK government report that looks into the likely impact of the law is incredibly damning. It finds that the plans to send threat letters to users and eventually kick them offline based on accusations (not convictions) would cost consumers in the neighborhood of £500 million. Note, of course, that the music industry itself claims that £200 million worth of music is downloaded in the UK per year (and, of course, that's only "losses" if you use the ridiculous and obviously incorrect calculation that each download is a "lost sale"). The report also finds that these greater costs on ISPs for managing such things (all of which will get passed along to consumers) will likely caused 40,000 residents to just give up their broadband, rather than pay the higher fees.

You might think that this would be reason enough to drop the bill as quickly as possible, but not so fast. The report also, without any evidence, suggests that the same law would also increase sales for the music and movie industry by £1.7 billion over the next ten years. That's odd, because there's still no one who can explain how kicking people off the internet actually gets anyone else to buy anything. In fact, we already have proof that it won't. Prior to the threats of losing your internet access were the much more threatening prospect of ending up being fined millions for sharing two dozen songs. And that didn't convince people to buy more.

Either way, the cost side of the equation makes it quite clear that this is the government asking consumers to artificially foot the bill for an entertainment industry that appears unwilling to adapt to a changing marketplace that requires new business models.

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In Going Free, London Evening Standard Doubles Circulation While Slashing Costs

Mike Masnick — Thu, 19 Nov 2009 20:11:00 PST

In October, we wrote about how, just as Rupert Murdoch and crew look to put up paywalls for online content, the operators of the London Evening Standard were going in the other direction and making their physical paper free. So, how's that been working out? mowgs alerts us to the news that the paper has doubled its circulation in just a month. Not bad. But what's more interesting is that it's also slashed its distribution costs massively. It used to cost about 30p, and now it's just 4p per paper.

This actually brings up a point that's rarely talked about in the free vs. paid debate. Charging can be expensive. It takes quite a bit of effort to charge, to take money, to manage the money, to set up the accounting and bureaucracy for managing each transaction. And, even worse, if you're working with third party distributors, like news agents, then you have to handle financial relationships with them as well. Getting rid of the per paper price changes the economics not just on the revenue side, but on the cost side as well -- something that's rarely discussed at all. And, yes, this impacts online news orgs too. Putting up a paywall is going to prove a lot more expensive than most people think on the cost side.

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Having ISPs Fight Piracy Could Cost More Than Claimed 'Losses' From Piracy

Mike Masnick — Wed, 23 Sep 2009 06:10:00 PDT

While I'm sure defenders of kicking people off the internet will quibble with the numbers, ISPs are pointing out that the cost of implementing Lord Mandelson's plan to have ISPs police the internet for file sharing, will cost the industry significantly more than the music industry claims it's losing to "piracy." Even if you accept that the ISPs may be exaggerating the cost, we already know for a fact that BPI massively exaggerates its loss numbers. So if you cut back the ISP estimates significantly, the overall cost is still likely to be much higher. Meanwhile, we're still waiting for anyone to explain how kicking people off the internet gets more people to buy stuff. It's difficult to see how anyone could support this plan if they've actually put more than two seconds into thinking about it.

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Music Industry Squanders $69 Billion Worth Of Free Promotions In 2007

Mike Masnick — Wed, 19 Nov 2008 08:33:00 PST

Over the years, we've seen so many bogus reports on the supposed "losses" to various industries due to unauthorized file sharing, that it's about time the story was flipped. Reader SteveD writes in to point out the latest research, claiming that in 2007, the dollar value of all unauthorized music file sharing was $69 billion. The research company that put out the number does clearly state that those numbers are not lost revenue (good), but then goes on to still claim that this shows how damaging unauthorized file sharing is for the industry:

"A $69 billion figure is staggering to contemplate, but it effectively illustrates the impact of piracy on the music industry."

Actually, I disagree. I don't think it shows the "impact" at all. If anything, you could flip this around (as I did in the title) and use it to show how much goodwill and free publicity provided by fans the industry squandered by trying to turn those fans into criminals, rather than learning to embrace that free labor in a business model that took advantage of all of that free promotion. Sure, the headline is an exaggeration, but it's no more of an exaggeration than claiming that the $69 billion represents the extent of any problem. If there's a problem, it's in the fact that so many folks in and around the industry view this as a problem rather than a huge opportunity and resource.

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Understanding The Backlash Cost In Copying Someone Else's Work

Mike Masnick — Mon, 29 Sep 2008 11:27:21 PDT

Earlier this month, we wrote about a neat marketing campaign put on by the Eepy Bird guys using tons of Post-It Notes. It wasn't clear if 3M, the makers of Post-It Notes was actually involved or not -- but it appears the company is busy at work on its own viral marketing campaign, though it's off to a poor start. As a bunch of folks have sent in, 3M apparently decided to make make its own car covered in Post-It Notes photo after the company failed to license the original photo that was made famous a few years ago.

Now, I find the people who claim that 3M was "stealing" the concept just as (if not more) silly as those who claim that downloading an unauthorized song is "stealing." 3M tried to license the photo and couldn't agree on a price, so it made its own. It didn't "steal" the idea, it just found it more cost effective to do it on its own (the classic buy vs. build decision). However, it does appear that the company didn't take the backlash cost into account in figuring out that buy vs. build equation.

This is actually quite important. Often, when we talk about things like plagiarism or copyright infringement, people insist that others will always "rip you off" and copy your work and there's absolutely no recourse. Yet, they fail to acknowledge the importance of reputation. If you are caught so uncreatively copying someone else, without doing anything new or innovative on top of that, it's not surprising that people will call you out, often vehemently, for your uncreative copying efforts. That can have quite a big cost in terms of reputation and credibility, probably a lot more than it would have cost to have reached an agreement with the original creator. So, before thinking it's so easy for big companies flat out "rip off" someone else's creative work, just remember that there are some pretty serious hidden reputation costs in them doing so.

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Yet Another Report On Why Forcing A La Carte Cable Is A Bad Idea

Mike Masnick — Tue, 15 Jul 2008 05:58:00 PDT

If there's one topic that we regularly discuss that many of our readers (even those who agree with us on most other things) disagree with us on, it would be mandatory a la carte cable. We've explained repeatedly why forcing cable companies to offer a la carte cable is a bad idea that would likely lead to higher prices and less choice. Yet people still argue against it, claiming (incorrectly) that they would just order a few channels and prices would decrease. Instead, those fewer channels would inevitably cost a lot more (if they were still available at all) because a la carte pricing for channels reduces demand for individual channels, resulting in higher (not lower) prices per channel. Jeff Eisenach and Adam Thierer have put together a short report looking at the problems of a la carte cable, and noting that even if the intentions of those supporting mandatory a la carte cable are strong, the end result isn't likely to be what they'd expect.

On top of that, it's probably worth pointing out that this debate may soon be moot anyway. As we move increasingly to a world where most TV programs are available online, the entire concept of the channel will go away. It won't matter what channel a particular program is on, because you'll just subscribe to that program, and it will get delivered over the internet. In the meantime, though, there's simply no reason to force cable companies into providing a la carte channel selections.

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Advocates Of A La Carte Mandates Misunderstand Infinite Goods

Timothy Lee — Tue, 3 Jun 2008 16:58:33 PDT

Some minority organizations are making the case that a la carte mandates would destroy the market for niche channels. They point out that the market for minority programming like BET and Univision is relatively small, so they (and minority viewers) benefit from being able to tag along with channels that have broader interest. FCC chairman Kevin Martin disagrees, saying that "if a cable operator only wants to carry one channel, it should not be required to buy 10 or 20 channels in order to do so." Martin seems to be thinking of cable channels as tangible products like cars or toasters: if people are only "required" to buy the channels they really want, they'll save money because they won't be "forced" to waste money on other channels they're not interested in. But this argument ignores the fact that television content is an infinite good. The costs of delivering cable content is almost all fixed; once coax has been run to a customer's house, it costs almost exactly the same to provide a given customer with every channel on the cable network or with only one channel. As a result, bundling is economically efficient: throwing in additional channels increases the value of the cable service without imposing any extra costs on the system.

People imagine that an a la carte mandate would mean that if they're currently paying $50 per month for 50 channels, then they should be able to pay $1 per month for one channel. But that doesn't make any sense. Switching a given customer from 50 channels to 1 channel doesn't reduce costs (the other 49 channels would presumably still be produced for other viewers), so why should the customer expect a lower bill? If anything a switch to a la carte actually makes things more expensive because in some cases cable companies have to install new equipment and set up a more complicated ordering and billing system to keep track of who had signed up for which channels. In reality, what would happen is that the cost of each channel would go up a lot. Instead of $1/channel, cable companies might charge something like $8/channel, with each customer choosing 6 channels on average. The result would be that most people would pay about the same for a lot fewer channels.

It's a mistake to think of bundling as being "forced" to pay for channels we don't want. After all, non-sports fans don't get outraged about the fact that they're "forced" to take the sports section with their morning paper. The right way to think about it is that you're paying for the parts of the bundle that interest you, and the rest of the paper is a freebie that doesn't cost you anything extra. It would be silly to demand that newspapers price each section of their paper separately and let you do without the sections you don't want. It's equally silly to demand that cable companies not show you channels you're not interested in watching, since those aren't costing you anything either.

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TV Companies Embracing Online Streaming... But Why Not BitTorrent?

Mike Masnick — Tue, 29 Apr 2008 06:42:00 PDT

The NY Times has an article talking about how the various TV producers are finally embracing the idea of offering up TV shows online, noting that Warner Brothers is now opening the vault and adding a bunch of old shows that can be streamed directly online. This isn't all that surprising. However, what's odd is that the article includes a few complaints about the cost of doing this compared to the revenue, with NBC Universal boss Jeff Zucker complaining "there are streaming costs so you have to make sure you’re covering that." Of course, that brings me back to a discussion some folks had around here over four years ago -- when we started wondering why television companies didn't just use BitTorrent to distribute their shows. If you combined RSS and BitTorrent (which was briefly referred to as "Broadcatching" by Ernest Miller) television companies could make it very easy for people to watch their shows. With RSS, they would "subscribe" to the shows, so as soon as a new one came out, subscribers would definitely see it. It would increase loyalty and remind people to watch their favorite shows. And by using BitTorrent, it would take the bandwidth cost away from the television companies. Unfortunately, the entertainment industry is still too scared of BitTorrent to realize how it can be embraced. So they complain about bandwidth costs for absolutely no reason.

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