The Economic Argument Against Copyright - Part 3 of the Copyright Saga
Please also read Part 1, Part 2, Part 4, and Part 5 of the Copyright Saga.
For this post, I'll be focusing on the economic arguments against copyright, because those are the arguments that copyright advocates claim in their favor.
First of all, I found this book in my internet research for these articles. It is presenting some of the same arguments that I am and probably doing it better. I haven't read it myself, but they have pdf files for download of the entire thing. He targets patents as well, which I hate too. I'll probably read it soon, because it looks very interesting. Hopefully my articles are at least shorter.
Economic and Game Theory
Against Intellectual Monopoly
Also, Yet Another Study Shows That Weaker Copyright Benefits Everyone.
Now, onto my main arguments.
The original idea for copyright was that people would create "works" and then sell them as a good itself. Each work would be a combination of physical media, such as a book or a record, and "intellectual property", the work itself that is protected by law. This work is created using professional quality equipment, so it lasts for a long time and looks really nice. Of course, what people are really buying is a license to read and use the "intellectual property" in the good. It doesn't really matter what form they buy it in, as long as the physical property isn't a piece of junk.
Or is it? If that was the case, then why would people still buy books for classic works which are no longer protected as intellectual property? If that were the case, people would just read a free version online. In reality, what these people really are paying for is the physical property, with its nice binding, a cool cover, a forward by an author they like, and the ability to read the book anywhere they like without messing with e-readers and computers. No one would buy just the binding, cover, and empty pages, at least, not at the price of a normal book. However, people also don't want to buy just the intellectual property.
This argument is bolstered by the fact that it happens in tons of other ways as well. People could just buy the paperback version of a book, but connoisseurs go for the hardcover. This provides better binding, a different cover, and sometimes larger print. People who want a cheaper option go to used bookstores.
For music, while a lot of people listen to mp3s, Internet radio, Youtube, and so on for free, a lot of people still buy and listen to CDs. (I do, and I'm not the only one.) While we hear that the record / CD store business is failing, and it is, the problem is not that people don't want CDs anymore. The problem is that they want CDs from the bands that they hear on their mp3s, Internet radio, Youtube, and so on, many of which are not being sold at the big record stores. They actually want a CD, with a case, with cool cover art, song information, and the music stored in a high quality format. Sure, people can sell high quality mp3, OGG, and AAC+ formatted files online, and this is kind of an ok compromise. People don't want to copy the music onto a CD-R themselves, not because its difficult, but because they want a CD with professional quality production that will last. They don't want to look at the brand name of the CD-R and the hand-written permanent marker that they used to label it when they put it into their CD player or show it to friends. They don't want it to deteriorate in a year or two.
From this, you can see that the value of the book and the CD doesn't solely come from the Intellectual Property, but by adding value to that Intellectual Property, by turning it into a physical object and making it last.
But, you ask, won't distributing it for free still take away from some potential sales? Won't a lot of people just use the free version? Won't they just bind it themselves and create their own CD cases? What if they sell them to other people?
It turns out that offering some form of the product for free usually increases the sales, even as more people use the free version. This works because of an idea called the "Long Tail", that describes how public interest and knowledge work relative to an idea or product. There are a couple of important points in the Long Tail theory, but the one that applies to this is that most business make most of their money from just a few customers. They might have several hundred customers, but most of the customers only buy a few trinkets a year. However, if a business could increase their total number of customers, even the trinket customers, they will end up increasing their premium customers as well. This is because the Long Tail operates as a power law, with the tail forming the trinket customers and the head forming the premium customers.
Many companies have been using this model for years, by offering a portion of their goods for free in order to create more buying customers. Music artists often have their music played for free on the radio. Video game companies offer demos and shareware. Discount membership clubs like Sam's Club and Costco offer samplers of food. Note that all of these businesses only offer a portion. If you want the full product, you have to buy it.
But what if the entire product was distributed by fans, for free, such as over the Internet? What if the creator had no control over this at all? Shouldn't we still defend against this?
Multiple studies have shown that "piracy" or just putting your work out for free Internet distribution increases sales. Some examples:
Sita Sings the Blues was originally blocked from traditional commercial release due to a special restriction in an old copyright on some of the music. After giving it away, she earned far more money than she expected she would have with the commercial route. This comment from its creator Nina Paley sums up the arguments I have already presented: "The more the content flows freely, the more demand there is for those containers. So I want as many people as possible to share Sita Sings the Blues because that drives up the demand for the containers... That was the theory when we started this, and so far it has proven correct. Yes, I love money."
Is EA Realizing That Pirates Are Just Underserved Customers? gets at the real problem behind low sales and the claim that downloading hurts sales. The real issue is that companies prices are too high, that their business models aren't meeting people's needs, or that their content isn't that great to begin with. In other words, if games with high sales get "pirated" more, is piracy still the problem?
In http://www.techdirt.com/articles/20080714/1150181670.shtml" target="_blank">Yet Again, Giving Away Free eBook Increased Sales Of Author's Books, we see that just giving your material away still tends to increase sales. Neil Gaiman is a very well known author, so it wasn't a problem that people weren't familiar with his work. Cory Doctorow of Boing Boing is famous for releasing his books into Creative Commons and still making a ton of money off of them as well. This strategy just works really well in a lot of cases.
In Radiohead's Manager: File Sharing Should Be Legal; It's Great For M..., we see that this has real support from big bands. They aren't talking about Youtube or Internet Radio here; they are talking about just letting people share it and listen to it however they like. Nine Inch Nails are very supportive of strategies like this as well.
Phil Foglio mentions in just about every interview that moving his print comic Girl Genius online with free distribution exploded the number of sales.
What if someone wanted people to have to pay to use their "Intellectual Property", rather than distributing it for free over the internet? Unfortunately, Artificial Scarcity Is Subject To Massive Deflation. In other words, trying to get someone to pay for Intellectual Property without the added value of the physical property will cause the good to deflate or lose value. This works more at the industry level rather than at the individual product level. Once it happens, however, the prices can't go back up. The point here is that the scarcity is artificial, as opposed to the creator's time or physical product. One thing to remember is that the customer's time and attention still is a scarce good, so they will not be able to or want to download everything.
This presentation of Disruption offers more support for the deflation argument. There are two important things to note here.
1.) The "Quality Use" lines represent customers. One thing that people often forget when talking about disruption, though, is that customers will jump to higher levels of Quality Use when they find something they really like. This would be like people buying special editions of DVDs or getting hardcover books when they normally buy paperback or use e-books.
2.) The "Quality Use" lines themselves improve in quality over time. This means that e-book readers will be steadily improving and will eventually grab a much larger portion of the market from paperback books. We'll also probably have new music distribution formats which really do replace CDs. Meanwhile, the amateurs who are currently having fun in these markets will outdo the professionals and take over the industry. If anyone tries to resist this trend by forcing people to pay for music files, people will just go find other artists.
I plan to handle the copyright is actually against the Heart of Nerdfighting next.
For this post, I'll be focusing on the economic arguments against copyright, because those are the arguments that copyright advocates claim in their favor.
First of all, I found this book in my internet research for these articles. It is presenting some of the same arguments that I am and probably doing it better. I haven't read it myself, but they have pdf files for download of the entire thing. He targets patents as well, which I hate too. I'll probably read it soon, because it looks very interesting. Hopefully my articles are at least shorter.
Economic and Game Theory
Against Intellectual Monopoly
Also, Yet Another Study Shows That Weaker Copyright Benefits Everyone.
Now, onto my main arguments.
The original idea for copyright was that people would create "works" and then sell them as a good itself. Each work would be a combination of physical media, such as a book or a record, and "intellectual property", the work itself that is protected by law. This work is created using professional quality equipment, so it lasts for a long time and looks really nice. Of course, what people are really buying is a license to read and use the "intellectual property" in the good. It doesn't really matter what form they buy it in, as long as the physical property isn't a piece of junk.
Or is it? If that was the case, then why would people still buy books for classic works which are no longer protected as intellectual property? If that were the case, people would just read a free version online. In reality, what these people really are paying for is the physical property, with its nice binding, a cool cover, a forward by an author they like, and the ability to read the book anywhere they like without messing with e-readers and computers. No one would buy just the binding, cover, and empty pages, at least, not at the price of a normal book. However, people also don't want to buy just the intellectual property.
This argument is bolstered by the fact that it happens in tons of other ways as well. People could just buy the paperback version of a book, but connoisseurs go for the hardcover. This provides better binding, a different cover, and sometimes larger print. People who want a cheaper option go to used bookstores.
For music, while a lot of people listen to mp3s, Internet radio, Youtube, and so on for free, a lot of people still buy and listen to CDs. (I do, and I'm not the only one.) While we hear that the record / CD store business is failing, and it is, the problem is not that people don't want CDs anymore. The problem is that they want CDs from the bands that they hear on their mp3s, Internet radio, Youtube, and so on, many of which are not being sold at the big record stores. They actually want a CD, with a case, with cool cover art, song information, and the music stored in a high quality format. Sure, people can sell high quality mp3, OGG, and AAC+ formatted files online, and this is kind of an ok compromise. People don't want to copy the music onto a CD-R themselves, not because its difficult, but because they want a CD with professional quality production that will last. They don't want to look at the brand name of the CD-R and the hand-written permanent marker that they used to label it when they put it into their CD player or show it to friends. They don't want it to deteriorate in a year or two.
From this, you can see that the value of the book and the CD doesn't solely come from the Intellectual Property, but by adding value to that Intellectual Property, by turning it into a physical object and making it last.
But, you ask, won't distributing it for free still take away from some potential sales? Won't a lot of people just use the free version? Won't they just bind it themselves and create their own CD cases? What if they sell them to other people?
It turns out that offering some form of the product for free usually increases the sales, even as more people use the free version. This works because of an idea called the "Long Tail", that describes how public interest and knowledge work relative to an idea or product. There are a couple of important points in the Long Tail theory, but the one that applies to this is that most business make most of their money from just a few customers. They might have several hundred customers, but most of the customers only buy a few trinkets a year. However, if a business could increase their total number of customers, even the trinket customers, they will end up increasing their premium customers as well. This is because the Long Tail operates as a power law, with the tail forming the trinket customers and the head forming the premium customers.
Many companies have been using this model for years, by offering a portion of their goods for free in order to create more buying customers. Music artists often have their music played for free on the radio. Video game companies offer demos and shareware. Discount membership clubs like Sam's Club and Costco offer samplers of food. Note that all of these businesses only offer a portion. If you want the full product, you have to buy it.
But what if the entire product was distributed by fans, for free, such as over the Internet? What if the creator had no control over this at all? Shouldn't we still defend against this?
Multiple studies have shown that "piracy" or just putting your work out for free Internet distribution increases sales. Some examples:
Sita Sings the Blues was originally blocked from traditional commercial release due to a special restriction in an old copyright on some of the music. After giving it away, she earned far more money than she expected she would have with the commercial route. This comment from its creator Nina Paley sums up the arguments I have already presented: "The more the content flows freely, the more demand there is for those containers. So I want as many people as possible to share Sita Sings the Blues because that drives up the demand for the containers... That was the theory when we started this, and so far it has proven correct. Yes, I love money."
Is EA Realizing That Pirates Are Just Underserved Customers? gets at the real problem behind low sales and the claim that downloading hurts sales. The real issue is that companies prices are too high, that their business models aren't meeting people's needs, or that their content isn't that great to begin with. In other words, if games with high sales get "pirated" more, is piracy still the problem?
In http://www.techdirt.com/articles/20080714/1150181670.shtml" target="_blank">Yet Again, Giving Away Free eBook Increased Sales Of Author's Books, we see that just giving your material away still tends to increase sales. Neil Gaiman is a very well known author, so it wasn't a problem that people weren't familiar with his work. Cory Doctorow of Boing Boing is famous for releasing his books into Creative Commons and still making a ton of money off of them as well. This strategy just works really well in a lot of cases.
In Radiohead's Manager: File Sharing Should Be Legal; It's Great For M..., we see that this has real support from big bands. They aren't talking about Youtube or Internet Radio here; they are talking about just letting people share it and listen to it however they like. Nine Inch Nails are very supportive of strategies like this as well.
Phil Foglio mentions in just about every interview that moving his print comic Girl Genius online with free distribution exploded the number of sales.
What if someone wanted people to have to pay to use their "Intellectual Property", rather than distributing it for free over the internet? Unfortunately, Artificial Scarcity Is Subject To Massive Deflation. In other words, trying to get someone to pay for Intellectual Property without the added value of the physical property will cause the good to deflate or lose value. This works more at the industry level rather than at the individual product level. Once it happens, however, the prices can't go back up. The point here is that the scarcity is artificial, as opposed to the creator's time or physical product. One thing to remember is that the customer's time and attention still is a scarce good, so they will not be able to or want to download everything.
This presentation of Disruption offers more support for the deflation argument. There are two important things to note here.
1.) The "Quality Use" lines represent customers. One thing that people often forget when talking about disruption, though, is that customers will jump to higher levels of Quality Use when they find something they really like. This would be like people buying special editions of DVDs or getting hardcover books when they normally buy paperback or use e-books.
2.) The "Quality Use" lines themselves improve in quality over time. This means that e-book readers will be steadily improving and will eventually grab a much larger portion of the market from paperback books. We'll also probably have new music distribution formats which really do replace CDs. Meanwhile, the amateurs who are currently having fun in these markets will outdo the professionals and take over the industry. If anyone tries to resist this trend by forcing people to pay for music files, people will just go find other artists.
I plan to handle the copyright is actually against the Heart of Nerdfighting next.
Tags: books, cd, comics, commercial, copyright, deflation, disruption, download, economics, intellectual
Comment
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Comment by Bryan Rosander, FL on October 15, 2009 at 8:23pm -
"I have to say that if they don't like the song enough to pay $1 for it, then there are probably other songs they can get for $1 instead. Also, that presents a curious idea, paying for a song according to how much you enjoy it. I know it's completely impossible to implement, but still, I think it'd be a fun idea to play with."
There probably are other songs that they are willing to pay for. The advantage of disruption is using the quantity of your customers to move up market, however. Giving up on a customer because you charge too much is giving up some of your advantage. There are quite a few pay what you like strategies that have been tried. Radiohead had the most famous one, I think.
Obscurity is always a bigger problem than abuse. Compare this to newspaper sites putting up paywalls so they can make money on people trying to read the articles. They just never go viral and everyone ignores them. Sure they are free to do it but its bad business. With newspaper articles, no one even cares because they can find similar articles elsewhere.
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Comment by Kitashi on October 15, 2009 at 7:38pm -
I don't think $1 is too much for a song entirely because I can listen to the song repeatedly. If it was per play, then I might question $1, but that's not the case.
"there are people out there for who $1 is too much to pay for a song. This isn't because they are poor, but because they just aren't interested enough in that music group"
I have to say that if they don't like the song enough to pay $1 for it, then there are probably other songs they can get for $1 instead. Also, that presents a curious idea, paying for a song according to how much you enjoy it. I know it's completely impossible to implement, but still, I think it'd be a fun idea to play with.
"You are putting an artificial barrier in the way of your popularity"
Some people don't care about popularity, they only care about money. Although it can be argued that making the music free and becoming popular could make someone money, I don't see the point in forcing someone to do so if they'd rather charge for their songs.
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Comment by Bryan Rosander, FL on October 15, 2009 at 7:10pm
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Thanks for reading Kitashi!
You said "So far, I don't really feel like you've said anything outstanding". If only this were more true! There are people out their who disagree with this, even though it is obvious to you and I. I'm glad that it comes across as common sense.
Your comments demonstrate that you really understand my arguments.
While I do think that $1 is too much to pay for an internet song download, you bring up a good point.
For the moment, they can get away charging for music and make a business model off of it. However, this might only be because the established competitors haven't folded yet. Once they fold or lose their market share, then the deflation will happen and the prices will drop to just barely above the costs of production. I'm not sure if that first deflation will affect itunes or just CD prices. There might need to be a second deflation on downloadable music, but it will happen. Clayton Christensen goes over this very clearly when talking about the steel mills.
More importantly, there are people out there for who $1 is too much to pay for a song. This isn't because they are poor, but because they just aren't interested enough in that music group. Sure they can watch it on youtube for free, but they want to set their music player on random and listen to it on the run. If its good, these people will send it to their friends and go to concerts. But they need to become customers first, and that $1 is stopping them. But if you think about it, there is an even larger problem with that $1 than the amount of the cost. You are putting an artificial barrier in the way of your popularity. People can't easily share their favorite itunes songs with their friends. These songs can't really go viral.
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Comment by Kitashi on October 15, 2009 at 5:06pm
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(this comment is in respone to parts 1-3)
So far, I don't really feel like you've said anything outstanding, but you did make a few good points in part 3 that I'd like to address.
"the value of the book and the CD doesn't solely come from the Intellectual Property, but by adding value to that Intellectual Property, by turning it into a physical object and making it last."
I agree. Physical forms of intellectual property allows people to use it away from a computer and keep it even if their computer fails.
"Many companies have been using this model for years, by offering a portion of their goods for free in order to create more buying customers."
I agree, but for a different reason. People are less likely to trust paying for something if they aren't able to decide whether it's worth their money or not, so one solution is for companies to offer a free sample so people can decide whether they might like the full product or not.
"Multiple studies have shown that "piracy" or just putting your work out for free Internet distribution increases sales."
Free internet distribution increases sales for the same reason that free samples increase sales - people want to be sure that a product is worth their money. With music, hearing the whole song is necessary because liking a whole song is more important than liking 30 seconds of a song. Sales may not increase for overpriced products. After someone knows that they like an artist (or at least a song), they'll be more willing to spend some money in support of that song or artist, as you said with point 1 of Disruption.
"the scarcity is artificial, as opposed to the creator's time or physical product."
Most songs available for download are about $1 each, which I don't believe is too much for a song, but when singles are released and are available for at least $15, that's when piracy without returns is going to occur, when new products have high prices due to artificial scarcity, or at least when they press the fact that few people have it.
"the customer's time and attention still is a scarce good, so they will not be able to or want to download everything."
Very true and pertains almost entirely to user-created media. Most businesses that I know of don't offer much for free.
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Comment by President Clive-φ-Davidson on October 3, 2009 at 7:56am - I agree. Keep it up!
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Comment by Bryan Rosander, FL on October 2, 2009 at 1:41pm
- I'll probably have to devote a special blog post to creative commons and the GPL 2.0. They're odd cases in that they're better than the current standard model, but I think they should go a lot farther.
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Comment by President Clive-φ-Davidson on October 2, 2009 at 11:54am
- I love creative commons! I am looking forward to more of your informative blogs.
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