There are many different aspects of piracy, but for simplicity sake, I want to focus on two aspects that feed into bills like SOPA and PROTECT IP: piracy as a competitive issue vs. piracy as a cultural issue. This can often be split as software piracy vs. media piracy, but not always.
She then gives a concrete example:
Imagine that you are an appliance manufacturer in the United States. You make things like toasters. You are required to abide by American laws. You must pay your employees at least a minimum wage; you must follow American safety regulations. All of this raises the overhead of your production process. In addition, you must also do things like purchase your software legally. Your designers use some CAD software, which they pay for. Your accountants use accounting software, which they pay for. Sure, you’ve cut some costs by using “free” software but, by and large, you pay a decent amount of money to software companies to use the systems that they built.
You really want to get your toasters into Wal-Mart, but time and time again, you find yourself undercut by competitors in foreign countries where the safety laws are more lax, the minimum wage laws are nonexistent, and where companies aren’t punished for stealing software. Are you grouchy? Of course you are. Needless to say, you see this as an unfair competition issue. There aren’t legal ways of bending the market to create fair competition. You can’t innovate your way out of this dilemma and so you want Congress to step in and make sure that you can compete fairly.
Well, AutoCAD, the leading CAD software, costs a few thousand dollars; the price of accounting programs for businesses varies greatly, depending on the size of the company. But the overall cost of specialized software for the toaster company needn't be more than a few tens of thousands of dollars (using open source operating systems and office suites helps minimize generic software costs.) Since you're hoping to get your toasters into Wal-Mart, out of necessity you have high-volume production runs (if you don't, then you're a boutique toaster company, and you can charge premium prices.) That means the extra cost due to software licensing per toaster will be a few cents.
Moreover, as that first paragraph quoted above makes clear, the key factor of the "unfair" competition is the radically different cost of manufacturing in countries where wages are lower, and health and environmental standards are less rigorous and hence less costly to implement. These will make far more difference to the costs than the possible use of pirated software, especially at Wal-Mart scales.
As a result, the logic behind the opening claim of this paragraph in the post seems dubious:
Combating software piracy in the supply chain is a reasonable request and part of what makes bills like PROTECT IP messy is that there’s a kernel of this issue in these bills. Bills like this are also meant to go after counterfeit products. Most folks really want to know what’s in baby formula or what’s in the medicines they purchase. Unfortunately, though, these aspects of piracy quickly gets muddled with cultural facets of piracy, particularly once the media industries have gotten involved.
The second part is absolutely spot-on, though: people rightly want to know that the medicines and foodstuffs they buy are safe. That means there is a genuine case for legislation that helps protect consumers against such health and safety dangers. But that's about combating counterfeits, not fighting digital piracy, much less software piracy. And that's the crucial distinction: not between software piracy and media piracy, but between digital piracy and analog counterfeits.
It's important not to blur that difference, as the last sentence of the above paragraph seems to do. After all, that's precisely the trick the ACTA negotiators used to bring in disproportionate punishments for digital piracy -- by confounding it with counterfeiting that endangered the public's health.
We've been pointing out that one of the big reasons why the MPAA/RIAA and others failed in their efforts to rush through SOPA/PIPA was that they have been totally and completely tone deaf to what's happening online. And it appears that's continuing. The LA Times had a bizarre article over the weekend, where people were suggesting that the MPAA needed to "do a lot of test messaging," to see what would work in convincing the public that censoring the internet is a good thing. Test messaging? Seriously?!? They still seem to think that this is about a lobbying or PR campaign, rather than actually engaging and hearing what people have to say.
Even more ridiculous is the new talking point that both the MPAA and the RIAA are apparently "test messaging" currently. And it's that they -- who own all of the major media outlets around -- are somehow at a disadvantage in communicating their views to the public. I'm not kidding. In that article above, Chris Dodd from the MPAA is quoted as saying:
"You've got an opponent who has the capacity to reach millions of people with a click of a mouse and there's no fact-checker. They can say whatever they want."
Yup, that's the new MPAA talking point: "if only you moron internet kids couldn't actually say what you want!" Does anyone actually brief Dodd about how best not to make it totally transparent that he wants to censor the internet?
But the RIAA is passing along the exact same message. Dodd's counterpart at the RIAA, Cary Sherman, is quoted as saying basically the same thing in the NY Times:
“It’s very difficult to counter the misinformation when the disseminators also own the platform.”
First of all, this is ridiculous on all sorts of levels. Was it true that some of those against the bill weren't completely up on the facts? Yes. But, lots of us were clear on our facts, cited specific language in the bill, and were quick to correct those who stated things that were incorrect.
But much more to the point: we're talking about all of the major media companies in the world who were in support of this thing, and they're seriously claiming that they didn't have the means to get their message out? Who the hell do they think they're fooling? They own all the major TV networks, all the cable news networks, the majority of top magazines, a bunch of top radio stations... and most of those media outlets refused to give critics of these bills the time of day. But suddenly they're claiming they couldn't get their message out? Give me a break.
Even worse, let's compare the two platforms: SOPA/PIPA supporters completely own TV. But TV is a broadcast medium. They could put on whatever propaganda they wanted, and there'd be no way to guarantee a right to a response on TV. The internet, however, is a communications medium, where anyone can take part. So unlike the reverse situation, the supporters of the bill had every opportunity to counter the claims of people online if they felt they were being misrepresented. The real problem was that, for the most part, they weren't being misrepresented. The problem was that people were saying what the bill would actually do, and Hollywood wanted people to focus on what they wanted people to believe the bill would really do. Reality, it seems, has a strong anti-Hollywood bias.
A few months ago, we wrote about how a TSA agent who was involved in an intrusive "pat down" of Amy Alkon threatened her with a defamation claim for daring to say and write that she felt she was raped by the TSA agent. Recently Alkon sought to publish an op-ed about her experience and the importance of standing up for one's civil rights in America. As she notes, pretty much all of the American mainstream media refused to publish the piece:
Media outlets that refused to publish this piece include the LA Times, The New York Times, Reuters, CNN, The Huffington Post, The Wall Street Journal, Yahoo.com, MSNBC.com, and The Washington Post.
You know who did publish it? Pravda. Yes, the rather infamous Russian publication.
The TSA's main accomplishment seems to be obedience training for the American public -- priming us to be docile (and even polite) when ordered to give up our civil liberties. Not only does the TSA violate our Fourth Amendment rights, they've posted signs that effectively eradicate our First Amendment right to speak out about it. One such sign, in Denver International Airport, offers the vague warning that "verbal abuse" of agents will "not be tolerated." Travelers are left to wonder whether it's "verbal abuse" to inform the TSA agent with his latex-gloved hands on their testicles that this isn't making us safer, or are they only in trouble if they pepper their statement with obscenities? Not surprisingly, few seem willing to speak out and risk arrest.
Whether or not you agree with Alkon's point, it seems bizarre that the big American media wouldn't even let her speak her mind on the subject...
from the meet-me-in-the-comments-section-in-five-minutes dept
Flash mobs are an odd sort of creature in the internet age. Normally, we associate them with some creative ways to entertain others or as a way to organize protests big and small. But now the esteemed Chicago media is reporting that several crimes in the Magnificent Mile area of downtown Chicago "have stoked growing fears of criminal teen flash mobs." And who has been stoking those fears?
The Chicago newspapers, of course -- who have declared that these crimes are all due to "flash mobs."
Last weekend there were four violent robberies in the city's famous shopping district, most or all of which appear to have been committed by relatively large groups of people (5-15). One such incident, which has been getting the most attention, resulted in a 68 year old man having his iPad and phone stolen by a group of teenagers. In addition, a new tactic for young thieves in the shopping districts appears to be to flood a store, disperse, and coordinate a mass grab-and-run via text message. This tactic has been noticed for the past three to four years.
The result has been a mini-media frenzy around "flash mobs", even though most of the crimes reported aren't anything of the sort. Most are your standard everyday robberies, occurring in a neighborhood in Chicago where shops and shoppers (theoretically those with money to spend) are located. But four robberies resulted in a couple of press conferences, one including new Police Superintendent Garry McCarthy, who cautioned reporters not to...you know...make stuff up:
The new superintendent cautioned reporters not to lump all of the incidents into the same category. Some are shoplifting. Others are robberies. And on Tuesday night, there was an incident that he called completely unrelated. One group of young men solicited cigarettes from another group of young men. When one man took out his wallet to pay, a member of the other group snatched the wallet and ran.
“These three men chased ten men to get the wallet back and eventually caught up to the ten men and lost the fight. That in no way shape or form represents anything that we’ve been talking about,” he said.
But thanks to this media attention, police are being diverted to the Magnificent Mile, an area with a relatively low violent crime rate, historically. What's interesting is how associations with certain terms can change. Flash mobs were fun. Now, thanks to a local press with an overactive imagination during a slow news week (ah, Chicago baseball teams...), Chicago is beginning to associate negativity with the term, so much so that police are being diverted from truly violent neighborhoods to the shopping district to stave off the fear of unruly teenagers coordinating their crimes via text message and social media. And if the police are reacting this way now, at the start of the summer season, what in the world are they going to do during the festival season, when destinations like the Taste of Chicago and Lollapolooza spring up?
One of the big debates over Wikileaks in the last few months was whether or not Wikileaks really was a media organization. Of course, as some people are finally realizing: it doesn't matter. The First Amendment should protect the organization no matter what kind of organization it is:
That's one argument in an article that appeared Wednesday in the Harvard Law and Policy Review by Jonathan Peters, a lawyer and research fellow at the Missouri School of Journalism. The First Amendment, Peters argues, protects both free speech and freedom of the press, and neither of those protections is any more or less powerful in protecting an organization that publishes classified documents. The amendment, after all, reads "Congress shall make no law... abridging the freedom of speech, nor of the press," and doesn't make a distinction between the level of protection on either one of those two clauses.
"The First Amendment does not belong to the press," Peters writes. "It protects the expressive rights of all speakers, sometimes on the basis of the Speech Clause and sometimes on the basis of the Press Clause. To argue that the First Amendment would protect Assange and WikiLeaks only if they are part of the press is to assume (1) that the Speech Clause would not protect them, and (2) that there is a major difference between the Speech and Press Clauses."
This seems like an important reminder for those still arguing over how to classify Wikileaks.
There was plenty of concern earlier this year, as Hungary took over the EU Presidency just at the same time it had passed a worrying new internet censorship law that lets the government fine any content provider that it judges to not be sufficiently "balanced." The European Commission apparently had planned to criticize the law... but somehow chickened out at the last minute. Glyn Moody points us to a (slightly confusing) account of what happened, where minutes before a vote was to be taken, some sort of "deal" was struck that appears to let Hungary continue to censor the media. Among the "concessions," it appears that the "balanced" part won't apply to internet-only media, but will still apply to other media. Online publications, though, still have to register with the government, and can face fines or get "dropped" from the register -- barring them from continuing to publish -- if they violate certain rules. As the report notes, this still seems like it goes against the basic concepts of freedom of expression and freedom of the press.
For years, we've spoken about why metered broadband stifles innovation, by adding serious additional mental transaction costs and limits to anything you do online. If you look at the history of various online services, you know that AOL didn't really catch on until it went to a flat-rate plan from an older metered (by time) plan. It makes a huge difference in how people use the internet, and putting gates and fences around them doesn't just keep the bandwidth down, but it limits all sorts of innovative services that rely on the fact that end users have no limits on their bandwidth. In the end, metered broadband always appears to be a way for ISPs to squeeze more and more money out of people.
However, as Canadian regulators seem prepared to let Bell Canada force all DSL providers into offering metered broadband, some are pointing out another reason for metered broadband. Not only does it stifle basic innovation, but it also protects the legacy media/entertainment industry and their business models. If downloading becomes more "expensive," then, in theory, fewer people will use services that require higher bandwidth. And this isn't just file sharing services either, but things like Netflix, which many studios still wish to limit and control when it comes to its online streaming plans. None of this is about "bandwidth hogs," at all. It's all about putting up barriers to anything that might be disruptive to legacy industries.
Right before the iPad launched, we warned media companies that expected iPad apps to be their savior that they were making a mistake. Specifically, it seemed that this was all wishful thinking from publishers, who were hoping to go back to a gated system that they had used for many years. They were betting on restrictions, which is never a good bet. Of course, the early numbers actually sounded good, with many magazines trumpeting how many iPad subscribers they got in the first few months. But, it appears that many people tested out iPad magazines, and then decided they just weren't worth it. Again, this is not a huge surprise. Just a few weeks ago, we again discussed how iPad magazines generally suck, and it was unlikely they were going to have lasting success.
Even so, it's still surprising to see just how dramatic the dropoff has been -- especially in a platform that is apparently still selling like hotcakes. Wired Magazine, which initially appeared to drink the Kool-Aid big time on using iPad apps, now sees less than a quarter the number of buyers that it had when it put out its first iPad issue. Vanity Fair, Glamour, GQ and some others have all seen big declines.
Hopefully this will kill off the dream of just recreating magazines for the iPad, and content providers can focus on creating tools that are actually useful, rather than just on replicating the structure of a magazine in a digital format.
I spent last week at the Monaco Media Forum, which was quite an event overall. Of course, as with many such events, many of the most interesting and valuable parts happen outside of the main sessions in the conversations and meetings you have with people separate from the scheduled topics. The good thing that I took away from the event was a pretty wide sense of optimism about the vast media world that we're heading into. Having attended plenty of entertainment industry conferences lately, which seem to be surrounded by doom & gloom predictions, this event was blissfully full of a pretty optimistic viewpoint, which was refreshing and a bit encouraging. Of course, as a caveat on that, there really weren't that many actual media people at the event. Instead, there were lots of technology/infrastructure companies as well as ad and marketing firms -- and all of those have plenty of incentives to be as optimistic as possible. Perhaps it's the media folks who are depressed... but they stayed away.
One exception was James Murdoch, who was actually a "co-chair" of the event, and he gave an interview discussing a wide range of things that are happening around News Corp. The entire video is about 37 minutes, but it's quite interesting:
Having questioned many of James Murdoch's recent statements on paywalls and copyright, I have to say that my initial impression was actually to be impressed. Here's a guy who -- without much experience -- is running a huge swath of the media industry around the world, and seems to have a very strong working knowledge of what's going on across the board, and can speak knowledgeably about them all. Many people I spoke with at the event felt the same way. On top of that, I actually agreed with many of the larger points he made about innovation, and the need to make bets on innovating, rather than just protecting their businesses and milking them for cash.
However, when he got down to the specifics, I went back to questioning many of his assumptions, and thinking that his world view may, in fact, be a bit skewed by his previous success (after, it should be noted... a string of failures, not mentioned at the interview) at BSkyB, a satellite TV provider in the UK. The more the interview went on, the more I realized that Murdoch appears to view much of the media world through that lens, and seems to saying that, in the end, the media world will end up like a giant pay TV system, with a big subscription. I think this is more wishful thinking, rather than where the internet is actually heading, and treating the internet that way will almost certainly result in failure -- such as with his paywall experiments.
He talks up the various successes with pay television (satellite and cable) around the globe, including Italy, Germany and India, and again that seems to influence his views. He points out, repeatedly, that no one really thought that going into those markets would work, but News Corp. proved all the doubters wrong -- as he no doubt believes the doubters on the internet will also be proven wrong. He gets into the discussion with the following statement, which got most of the attention (and a bunch of Twitter messages of support from those in the audience):
I think there's a lot of talk about monetizing content and there was hand-wringing and for years and years... I remember in the late 90s I was in Singapore, and people were talking about mobile media and what is it going to be and what are the killer apps and all that sorta stuff... And I guess, I just look at it more simply. I think the first rule of is if you're going to monetize something is that you should probably not give it away for free.
This is at 14:25 in the video, and you really have to see the sarcastic eye rolls when he says that last line. And, you can immediately hear the laughter in the audience (which was much louder). But here's the thing: he's wrong. And he must know that he's wrong. Media businesses have made tons of money for years while giving away stuff for free. The very, very successful network television business (of which News Corp. owns one), for example, was always based on giving stuff away for free, but selling the attention of viewers. The newspaper business (which is where News Corp. originated) wasn't based on giving away stuff for "free" totally, but on subscriptions that never even covered the cost of printing and delivery.
No, this doesn't mean everything should be given away for free, but as the CEO of a large chunk of News Corp's media business, and supposedly being thought of as the guy at the company who "gets" new media and new media economics, it seems troubling that he so flippantly ignores the basic economics of non-excludable, non-rivalrous content, and how it can be utilized as part of a larger business model, by making other things more valuable and selling them.
So if you think about it and you're investing in things and you say 'I'm trying to figure out how to make money for this,' and then you give it away, it doesn't seem to work.
James might want to check out a little company called Google, which has done rather well giving away lots of things for free.
From there, he talks about "fair" pricing, and how they want to invest in content and price it fairly knowing that not everyone will consume it. But, of course, that's not really the issue. It's not about "fair" pricing. It's about market pricing. And if everyone else is offering market pricing and you're focused on "fair" pricing -- and your so-called "fair" pricing is above the market pricing, it's not that "not everyone" will consume it, but almost no one will consume it. And that's where you run into problems. Hell, I put a ton of work into this site. Let's say I think a "fair" price for anyone reading this site is a dollar a day. But, the market says otherwise, so my job, as someone running a business, is to figure out a way to get that money by offering something of value that can be priced not fairly, but competitively that the market will want to buy. That's what business is about. It's not about "fairness." It's about understanding the market.
Now, that said -- the point he makes following this is one I agree with wholeheartedly -- which is that if someone is not willing to pay, then it doesn't mean that it's the users' fault, but that as the content producer/copyright holder/etc. It's News Corp's job to innovate and convince people that there's something worth paying for. That's the whole basis of my "reason to buy" concept. But, the problem here is that simply designating a "fair price" when it's way above market price, is usually not a reason to buy, especially when your product is in a highly competitive and dynamic market, as is the case with news.
It's the next bit where you realize how much he's still focused on the pay TV business. He notes that, in Europe and Asia, 70% of the company's revenue is from subscriptions -- rather than advertising. He uses this to suggest that people online were so focused on reach and audience share, that they weren't focused on actually making money. Again... he's right on the facts, but wrong on where that leads him. It's true that many in the online world did not focus on making money, and that was a huge mistake. But that doesn't mean that putting up a paywall is a good strategy to make money. And that's where I think the major disconnect comes in.
He then makes the specific statement that the online news business will become like the cable business, with bundles and affiliate revenue. Here he's making the classic pay TV industry error of being so infatuated with the fees that are being passed around to carry channels, that they're hoping to recreate such a world online. But, this ignores the reason those setups have developed (limited competition and scarcity of access -- both of which don't apply in the online world) as well as the incredible frustration this has created with consumers, who are fleeing in droves (something Murdoch more or less tries to dismiss during the Q&A by saying many of the cord cutters in the US are doing so because the "deals" to get people to switch from analog to digital TV are up).
It's a bit amusing to hear him note that iPad apps for newspapers are much more cannibalistic than news websites. Again, I believe that point is absolutely true, but he seems to ignore the implicit other point he's making here: which is that web pages really weren't all that cannibalistic of newspapers.
Of course, the other funny thing is that you can see pretty clearly throughout the interview that one of his key talking points is this idea that "News Corp." isn't that big. Towards the beginning he starts to call it a big media company, but then corrects himself and says "mid-size." Later, he makes sure to note that Apple is ten times the size of News Corp., and that a company like BT is making much more money in the UK. The banker interviewing him mentions Amazon as a larger company. But that's all smoke and mirrors. News Corp. is the third largest media company in the world, only behind Disney and Time Warner, has over $30 billion in revenue and $54 billion in assets. Sorry, James, you're not a mid-sized business. You're a big, big business.
Towards the end, in response to an audience question about cord cutting and how it will impact News Corps.' business, Murdoch again brings up how they'll just make it like cable to some extent, and then falls back on the "but content is really expensive to make" line, by pointing out that, while other industries may find that things get cheaper thanks to technology, that's not true in content production. He pops out this lovely line:
There is no new technology that makes athletes not greedy.... And I think that's really something that the telco industry and a lot of the tech industry hasn't really understood -- that there's (chuckle) a whole economy behind this...
It gets a laugh, and afterwards I heard a lot of people say they agreed and it was a good point. But, I think it's a line that sounds good and masks that he's discussing two separate things. The first question is the cost of producing content. The other question is how do you make money. But those two are not the same question. No one has said that you don't make money. Saying that your business model has to change is not the same thing as saying you don't make any money. If your content is expensive to produce, then yes, of course, you need to figure out a way to have it make money, but that doesn't mean that simply charging for it is the way to do that. You can get away with charging for ancillary things (convenience being a big one), but it's important to recognize what people are really paying for, or you risk alienating them quite a bit, and driving them to alternative means of content consumption.
On the whole, I actually came out of this more impressed with Murdoch than when I went in. However, I still think that he's making some pretty serious mistakes in his assumptions, and it's going to come back to haunt him and News Corp. in the long run. The failure of the paywall for The Times is just the early warning sign.
Lots of talk today about the fact that Newsweek, the struggling magazine that's been around for 77 years, has merged with two-year old website The Daily Beast, which never really picked up all that much traffic considering its ambitions. But in an odd move, reports now are saying that the plan is to shut down the Newsweek site and to keep The Daily Beast running. If that's the case... um... why merge at all? Newsweek has the more well known brand and much more traffic. This sounds like an ego merger, where the idea is just to promote the fact that The Daily Beast devoured Newsweek. And that gets you, what, the attention of a tiny group of media business insiders for a couple weeks?