Calling Competition A 'Race To The Bottom' Won't Make It Go Away

Say That Again

from the it's-called-competition dept

Bill Rosenblatt has a puzzling article accusing Radiohead of sparking a "race to the bottom" with its name-your-price experiment. There are a couple of big problems with the article. In the first place, Rosenblatt tries to paint the experiment as a failure, but the facts don't support his conclusion. Rosenblatt seems horrified by the fact that 62 percent of downloaders paid nothing, and the remaining 38 percent paid about $6 per album. But that works out to $2.28 per person, which, according to some back-of-the-envelope math by Luis Villa, is right about the average royalty for a major-label CD. If Radiohead got roughly the same amount of money, and got a ton of free publicity in the process, that sounds like a smart move to me. And most likely, this reasoning understates Radiohead's revenues, for two reasons. First, a lot of the people who downloaded without paying probably wouldn't have bought an album anyway. And second, Radiohead has signalled that the comScore statistics Rosenblatt is using are inaccurate. So the results may actually be even more favorable for Radiohead than Rosenblatt's numbers suggest.But the strangest thing about Rosenblatt's article is the pejorative use of the term "race to the bottom" to describe competition in the music industry. When Apple cuts the price on the iPod, we would be really surprised to see a columnist complaining about how Apple had started a "race to the bottom" that will undermine profits among consumer electronics companies. We understand that, as painful as competition can be for producers, consumers and the economy as a whole benefit from such aggressive price-cutting. Talking about a "race to the bottom" is the language of cartels, which try to hold prices above the competitive level. Music is like any other product As the marginal costs of production and distribution fall, it's natural that the price of music will fall as well. Smart musicians and companies will find ways to adapt and prosper in the new, more competitive marketplace. As we've said before, saying you can't compete with free is saying you can't compete at all. The sooner musicians and record labels realize that, the more prepared they'll be when the price of music drops out from under them.

Filed Under: business models, competition, free markets, music, radiohead

Another Example Of Less Intellectual Property Protection Leading To More Innovation

Predictions

from the innovation-without-IP dept

ZeroPaid, TechCrunch and Wired are all pointing to a video interview done by writer Thomas Crampton of a guy in China, who talks about how much more advanced P2P technology is in China, mostly because the makers of that technology don’t have to constantly hide themselves underground or fight with the entertainment industry and the government just for the right to exist. While some are saying this is quite a revelation (others are pointing out that the claims seem exaggerated), it shouldn’t be surprising at all to find out the technology is getting better without the constant pressure from the entertainment industry. For years, we’ve seen example after example after example of where the fight to more stringently protect intellectual property in the name of innovation has actually done the opposite, slowing down the pace of innovation. In fact there are whole books on the topic. This is merely another example. While the entertainment industry has continued to insist that more stringent copyright laws help promote innovation, that’s increasingly being proven incorrect.

Amusingly, it seems that the “protectionist” China is leading the way with much more free market policies on these issues. Two and a half years ago, we pointed out that, despite all the problems with rampant “piracy,” the Chinese music industry was doing extremely well — because those musicians had learned to adapt and embrace new business models that didn’t require directly selling the music. It’s only two years later that musicians outside of China seem to be catching up.

However, the more important lesson here is in understanding the unintended consequences at play. The RIAA and the MPAA (and Congress, through the generous donations of those two organizations) have talked about how important it is to “protect” content — but in doing so, they crippled the industry for developing P2P tools, which have the potential to be a much more important part of economic activity in the future. Better tools for the distribution and promotion of content are quite important, and by cracking down on that in the name of “piracy” we’ve now hurt the US’s ability to lead in that field — and without any real benefit to the content creators the industry was so anxious to protect. It’s really the same as any other protectionist policy. If you protect an industry, it just allows others elsewhere to be more innovative and more nimble and to take control over that industry. It simply destroys the industry at home where it’s supposedly “protected” and hurts consumers by offering them less innovation for more money.

Filed Under: china, competition, free markets, innovation, p2p, regulations

Copyright Alliance Pretending That Gov't Backed Monopolies Are The Free Market Again

Say That Again

from the up-is-down,-black-is-white dept

A few months back, the big entertainment companies formed yet another copyright lobbying group — as if they didn’t already have enough — to push for more restrictive copyright policies that would limit the rights of consumers. This was the group that just last week was trying to spread the myth that fair use was not a right and copyright holders should be able to lie about what rights copyright grants them. However, the head of the group, Patrick Ross, really seems to get into trouble when he tries to trot out free market concepts to support his positions. You may recall back in January his position that getting rid of the DMCA would go against the free market because it would represent government intervention. He seemed to totally ignore the fact that it was the DMCA that was gov’t intervention in the first place. Apparently, Ross hasn’t given up on this “up is down, day is night” type of debate style, as copyright expert William Patry has taken Patrick Ross to task for claiming that new laws supporting consumer rights when it comes to copyrighted content were “government intervention” against the free market. As Patry points out all copyright is government intervention — and supporting stronger copyrights is to be calling for greater gov’t intervention. To then claim that giving more power back to the consumers on copyright is gov’t intervention, is being intellectually dishonest. You can support copyright by claiming that the market breaks down and there’s a market failure that necessitates such gov’t intervention (and, in fact, many people do). But to claim that stronger copyrights means a stronger free market is an outright falsehood. Ross seems to be under the false impression that the “natural” position of the market is to have the strongest possible copyrights, and therefore, any weakening of that is gov’t intervention. That creates a complete blindspot to the fact that all copyright is government intervention, and giving rights back to consumers is less government intervention.

Ross’s response to Patry in the comments continues this rather twisted logic, by claiming that free markets are about property rights, and therefore, supporting stronger copyright is about supporting stronger property rights — and therefore, it is a free market position. However, Ross’s understanding of the free market is confused here. He’s right that property rights are important — but only as a means of more efficiently handling the allocation of scarce resources. That’s the entire purpose of property rights in the free market. The logic breaks down, rather completely, when you talk about infinite, rather than scarce, goods. There is no need for more efficient allocation of infinite goods, because they’re infinitely available, and therefore allocation is automatically efficient. Again, it’s perfectly reasonable (though I would likely disagree with some of the assumptions) to argue that copyright is a necessary gov’t intervention due to market failures from a true free market (which appears to be Patry’s position). However, to argue that stronger copyright monopolies from the gov’t is the opposite of gov’t intervention isn’t a supportable position.

Filed Under: copyright alliance, free markets, patrick ross