The Latest Entrant Into The Economically Clueless, Luddite 'Internet Is Evil' Book Category

Economics

from the it-must-sell-well dept

Last we heard from Rob Levine, he was saying that people in the music industry shouldn’t pay attention to what’s popular on file sharing networks, because you can’t learn anything from that. That was when he was executive editor of Billboard, and clearly was trying to defend Billboard’s obsolete listings of what was popular. Very, very shortly after that he was out of a job quit Billboard. Now he’s back and it seems like he’s barely lost a beat on saying clueless things. He’s got a new book out about how the internet is evil, destroying all of the media, and to kick up some publicity for it, he’s got a piece over at The Guardian that you guys just can’t stop submitting. It’s provocatively titled: How the internet has all but destroyed the market for films, music and newspapers.

Of course, that’s fascinating, since pretty much every study we’ve seen shows that the market for films and music has increased, and while for newspapers it has shrunk, that’s unfairly limiting the market to the paper side. The market for news has continued to grow. Most of Levine’s article seems to be made up of typical wishful thinking, carefully choosing how he defines markets, and a strong dose of traditional economic fallacies, with just a pinch of luddism. The article opens with the classic trick of pretty much anyone who’s data can’t back up what they’re selling: use random correlations, rather than any evidence of a causal relationship. So, he talks about the declines of NBC, EMI, the Washington Post and MGM. And, somehow, that’s proof that the internet is at fault. I won’t go into each case, but there are many, many other reasons why each of those four companies ran into tough times recently, almost none of which has to do with the internet (and much of which had to do with ridiculously bad management).

From there he makes a massive leap to basically blame the tech industry for the entertainment industry’s problems. Stop me if you’ve heard this one before. Apparently, you see, The Pirate Bay, Google & the Huffington Post sucked every other industry dry. This, of course, is not true. It’s a made up scare story for entertainment industry executives and politicians. I mean, this kind of scare mongering has been debunked so many times that you’d think Rob must have to pay someone for rehashing such old news. Let’s dig into this just a bit:

Over the past decade, much of the value created by music, films, and newspapers has benefited other companies ? pirates and respected technology firms alike. The Pirate Bay website made money by illegally offering major-label albums, even as music sales declined to less than half of what they were 10 years ago.

The Pirate Bay made a tiny amount of money — barely a blip on the radar — and given the continued research showing that those using sites like The Pirate Bay tend to be the industry’s best customers, it’s entirely clear (unless you are willfully ignorant) that the issue is a business model problem, where the labels failed to offer what consumers wanted. Furthermore, since he brings up “music sales,” he’s flat-out wrong. Sales of recordings may have dropped, but if you actually look at the real market which Levine conveniently ignores, which includes live, publishing, advertising, direct-to-fan and others, you discover that the money that actually goes to musicians has gone up tremendously. Sure, the record labels are suffering, but that’s because they set themselves up to focus only on the part of the business that got disintermediated.

YouTube used clips from shows such as NBC’s Saturday Night Live to build a business that Google bought for $1.65bn.

Ah, the industry’s false line again. YouTube provided free software and free bandwidth (at a huge expense to the company) and combined that with a large community to become the defacto place online for video. Lots of smart folks — including NBC’s Saturday Night Live, eventually learned to embrace that and use YouTube as a tool to gain viewers. In fact, if you want to look at who benefited more from SNL’s videos showing up on YouTube, there’s a pretty strong argument that it was SNL… not YouTube.

And the Huffington Post became one of the most popular news sites online largely by rewriting newspaper articles.

Nice line. If only it were true. It’s not. The Huffington Post launched with a ton of new and unique content from lots of people. Huffington called in a bunch of favors and had a ton of her famous friends writing for the site from day one. On top of that, the company has a large reporting staff that does plenty of original and unique reporting — much of which accounts for its traffic. Yes, it also does some aggregating of content — but nothing that any other news publication couldn’t do as well. If it’s really true that HuffPo somehow hurt other media, they could just tack on the same sort of aggregating. Anyone who claims that HuffPo became popular by rewriting newspaper articles is lying.

This isn’t the inevitable result of technology. Traditionally, the companies that invested in music and film also controlled their distribution ? EMI, for example, owned recording studios, pressing plants, and the infrastructure that delivered CDs to stores.

I read this and all I see is that EMI is the horse buggy maker, who invested in wooden wheels and buggy whips just as the automobile was coming around. Look, if you invest in the parts of the business that become obsolete in the digital age, you kinda deserve to die. I’d hate to live in Levine’s world where the buggy maker should have been able to stop the automaker. We had our red flag laws that required people to walk in front of automobiles waving red flags, and everyone learned they were stupid.

But, Levine thinks red flag laws are the answer to saving his incompetent buddies in the entertainment industry. You see, he blames one of the few good regulations out there, which he hopes gets taken away:

The internet changed all this, not because it enables the fast transmission of digital data but because the regulations that enable technology companies to evade responsibility for their business models have created a broken market. Scores of sites now offer music, while hundreds of others summarise news. Part of the problem is rampant piracy ? unauthorised distribution that doesn’t benefit creators or the companies that invest in them. It also puts pressure on media companies to accept online distribution deals that don’t cover their costs.

Anyone who thinks that the market didn’t change because of the ability to more efficiently distribute data is making a joke. But, let’s go on. Levine is, again, misrepresenting reality. The laws he’s talking about — mainly the DMCA’s safe harbor — do not allow tech companies to evade responsibility. Levine is, again, being intellectually dishonest. The safe harbor merely means that liability is properly applied to the actors actually doing the infringement. Apparently Levine prefers to blame Ford for any car accident.

As for that last line about “pressure on media companies to accept online distribution deals that don’t cover their costs,” that’s a howler. Just take a look at the “deal” that Pandora has for streaming music, which has set up Pandora to never be profitable. And what “costs” do the record labels have for those deals? It’s a sunk cost. They recorded the album and they just hand over the digital files to Pandora. No marginal costs at all.

But the underlying issue is that creators and distributors now have opposing interests. Companies such as Google and Apple don’t care that much about selling media, since they make their money in other ways ? on advertising in the first case, and gadgets in the second. Google just wants to help consumers find the song or show they’re looking for, whether it’s a legal download or not, while Apple has an interest in pushing down the price of music to make its products more useful. And this dynamic doesn’t only hurt media conglomerates ? it creates problems for independent artists and companies of every size.

Another favorite of the entertainment industry. It sounds good if you aren’t actually thinking this through. But there’s a weasel phrase in there that lets Levine say something that he can insist is true, while it’s totally and completely misleading. He says they don’t care about “selling media.” But that assumes that selling media is the only way for the entertainment industry to make money. Google and Apple care very much about making sure that content creators get paid, because they need content creators to keep making money to keep producing works (which, by the way, is happening, as we have record numbers of new music, movies, news and other products coming out each year — a fact that Levine seems to completely ignore). But they know that there are better ways to get them paid than just “selling media.” In fact, when you just look at the music industry alone (the industry Levine should know best), he must know that actual artists are now making significantly more than they did in the past, thanks to the industry shifting away from “selling media” to other business models.

Then he jumps in with the luddite’s favorite line about how everyone who disagrees with him tosses out “information wants to be free.” Of course, as Cory Doctorow pointed out last year, the only people who seem to toss out that line are entertainment industry execs pretending that’s what people who disagree with them say.

The crux of Levine’s argument (and the title of his book) is that all of this shows the problem of “free riders.” This is another popular entertainment industry trope, which sounds good… other than the fact it’s economically clueless. Yes, there are certain areas of economics where free riders can be a problem. But there are also such things as positive externalities and economic growth created because of free riders. There’s a serious book to be written on the subject, but it’s not this one.

Certainly, copyright laws need to be updated for the digital age. Many reformers say they favour protection, but view any attempt to enforce it as unacceptable. This doesn’t make sense: a market can’t be based on voluntary payments, and laws don’t work if they can’t be enforced. There needs to be some penalty for illegal downloading, although slowing the access speed of a lawbreaker makes more sense than cutting their account entirely. By the same token, why should internet users be allowed to access sites that clearly ? and that last word is important ? violate UK law? If the UK simply declines to enforce its laws online, it will leave many of its businesses vulnerable as the internet becomes more important to commerce in the years ahead.

Note the implicit — but false — assumption in there. Without copyright, the only business model is “voluntary payments.” That’s funny, I didn’t realize I had ever been “forced” to pay for all of those CDs, concerts and movies… A market is always based on “voluntary” transactions between willing buyers and sellers. That’s the definition of a market. How can he say otherwise?

I’m guessing he really means “voluntary” in the idea of “tips” or “donations,” but that again presumes (totally falsely) that the only way to make money is from the direct sale of media. It’s not. And he must know that.

Honestly, for all the trouble I’ve given Levine in the past, I always thought he was pretty sharp on the larger issues. But this column (and, I presume the book it advertises) seems to have simply taken all the tropes, ignored all the data, misrepresented wherever possible, and packaged it all together under a silly economically ignorant title. I’m sure it’ll sell just great. Thankfully, though, if you read through the comments on his article, nearly every one of his ridiculous statements is dismantled item by item. Ah, crowdsourcing to the rescue.

Filed Under: economics, free rider, internet, regulations, rob levine