Does file-sharing demand a new economic model? (long)

Great Debates
41

The problem with radio is you’ll rarely (if ever) hear anything but singles. P2P lets you hear every song on a CD before you buy it.

Even with my satellite radio, I never heard more than two songs from the new Strokes album (“12:51”, and some other track they didn’t play often enough for me to remember the name). I bought it anyway, mainly because I downloaded all of Is This It? and loved it, but frankly I can see why they only played “12:51” on the radio. I haven’t bothered to listen to the new CD more than twice, and if I didn’t think they deserved my money for making their last album, I’d try to return it. (Which would be futile, of course.)

I used to see listening stations too, about 5 years ago in Blockbuster Music. Haven’t seen them since. The closest I see anymore is 30 second preview kiosks in Target and Borders, and scratchy 30 second previews on Amazon and iTunes.

That brings me to another reason people trade music but not books… you don’t hear a book on the radio every day and get it stuck in your head. I’ve found myself downloading songs just because I couldn’t stop humming them. That’s a good use for iTunes and Napster, IMO, but they’ll have to improve their selection. Any new track you can hear on the radio should be available to buy, even if it’s not out on CD yet.

42

I point you to the success of Stardock Systems, which has been doing business by a new business model for 10 years. On a broader front, shareware and Free Software (including Linux) has some success with the same new business model. Sure, this is software, not music, but the same model should work for both sectors.

43

Yes, but you don’t always get to read an entire book either. Sometimes the library has them, but often not if the book is quite new.

You obviously don’t watch BookTV on Cspan during the weekends. I have been caught a few times by authors talking about thier books where the subject or his take on it caught my attention to the point where I simply had to read the book. I’ve spent quite a bit of money at the bookstore over the last year or so because of it. Of course, I didn’t go down to the library and copy them.

But this is only a motivation. That people want to listen to new music is a given (or I thought it was). The problem is that people want the songs for free. It seems that if people were to stop trading songs with 0 compensation and pay reasonable fees to get new music, the current system would work just fine. There would be no need for the recent abuses. Excepting, of course the time limit increases. That abuse had little to do with file sharing.

44

I’m not sure it’s appropriate to put up continued profits for artists as a given in a new system. The day someone figures out how to magic up a porterhouse from common household goods of no comparative value, the beef farmers aren’t going to keep profiting. Some people will still have cows, but it’s not going to be a viable industry.

If people can reproduce and distribute music and video at no comparative cost, the game is up. The people who were involved for the money are out the door. There will be a much smaller population of people who want to make art, and those who can generate profits through public performances.

45

Interesting, but my question was about artists and authors.

I’d like to know, more specifically, how this would work for visual artists (photographers, painters) and authors (writers of novels, non-fiction, etc.).

Also, I mentioned earlier, I’m working on a a book, and there will necessarily be PDF file of said book. What should the “new ecomonic model” be on people who write books? Should the e-Book versionsbe allowed to be “shared” via P2P, as long as no profit is being made? Should I be allowed to prevent the “sharing” of my book in an electronic form? Or, what if someone printed my eBook out and was distributing it in print form (to a classroom, etc.) against my will and without my permission? Would this fit into the “new ecomomic model”?

46

I would suggest that this is not the pattern of history. Your analogy with cows falls apart when you consider that the pseudo stakes would not require the cows in the first place. Trading art online still requires an artist. There was a similar argument amongst nations during the 16 and 17 hundreds. They were trying to define piracy. For a long time, it was fairly easy for pirates to raid trading routes while the major powers of Europe were unable (or unwilling) to do anything about it. Eventually, however, new legal consensi (plural of consensus) were reached. New enforcement technologies were developed. And the pirates were systematically put out of business. This story was repeated with radio, television and even the printing press. You might be surprised at how similar the rhetoric is between the “free information” ideologs and the “radio boys” of the early 1900s. They all thought that the technology made information free and could not be regulated. I would suggest that they both are wrong.

The problem as I see it is that these new legal programs will also involve a curtailing of other civil rights. They will only involve such curtailing in a responsible manner at first. For instance, the recent invasion of privacy committed by the RIAA, I think, resulted in notice being sent to someone who did not in fact download any music. But it was only 1 out of a couple thousand warrants.

Unless we come up with a business model which guarantees artists rights, we are going to see more, not less, of these abuses.

47

If you can’t read an entire book at the library, then you get it from a store.

My point is that people consume and buy books in a different way from music. The average person who has read a book for free won’t want to keep a copy, but someone who has heard a CD for free will still want to listen to it again soon. Music is “advertised” by playing it for free on the radio; books are not.

You can find the same thing in music reviews or band interviews. But music is promoted not just by talking about the music in an attempt to raise interest, but by playing the actual songs. I think there’s a lot more desire to download a song that you’ve already heard, rather than a book you’ve only heard about.

Exactly. The motivation for getting music is different from the motivation for getting books.

That’s why we don’t need a new economic model for books and art, because the one we have is working fine. If people really cared about getting books and paintings for free, they’d already be doing it.

48

OK, we agree that books and paintings are different than music. Perhaps they are different enough that they can benefit from different economic models.

The difficulty, is that in many ways they are similar. They both represent forms of intellectual property (whatever you think that means and however you think it should be legislated) How would you formulate a model which does not trample on the protections of authors and painters?

I think, again, that this points to the problem being one of an unwarrented desire on the part of downloaders.

49

I think that movies will be as easily downloadable as music before long. Broadband data transfer into the home won’t be that far away, and with another generation of compression technology to make larger files such as full-length feature films manageable, I’d guess within 5 years. At $100 million dollars each, a pirated pre-release that plays well on your home theater system could cause havoc in Hollywood. At the very least it’s going to hit the DVD market.

This is the question I also ask. What happens when (and I do think it’s only a matter of time) someone comes up with a killer app or two for robotics that makes them profuse in small businesses and at home, similar to the way PC’s and cell phones affect even the lives of those who don’t own them?

Assume that you can buy the inexpensive custom tailored Versace knockoff. Or a copy of a masterpiece that’s exact down to the texture on the canvas, or a machine that binds books for you at home along with a dozen other handy features. What then? Even more likely, intellectual property will be accessable in ways we haven’t thought of yet and in as little as a couple decades, I see the stakes potentially getting exponentially higher, costing hundreds of billions of dollars a year world-wide in disputed income due to easy replication.

50

Bump, when I saw your screen name, I thought to myself, “Why the heck is he bumping an activve thread?!” Evidently I’m some kind of genius.

You are going to have to go to Levine’s site, get the model, and prove that for yourself. The model merely assumes that there is some preference for consuming sooner rather than later for at least some people. You will have to do the math (literally!) to show that your chosen parameters on this preference meaningfully affect the results.

I don’t know. I originally came here to respond to another new-economics assertion–I misread the OP.

You are getting into deep waters that, IMO, defy simple answers. The guy I cited above argues quite well a simple solution: Anybody who gets a copy of your book is free to sell it for profit or not. You can go through his page on your own and email me if there is any technical econ stuff that bothers you.

Let me explain what sort of problem we’re dealing with. For any activity, the optimal amount of it is where the benefit of “one more unit” is equal to the cost of “one more unit.” If nine more minutes of sleep, one snooze cycle that is, is worth more than the cost of getting up nine minutes later, then you should hit the snooze and continue doing so as long as you benefit more from hitting the snooze button than you lose by doing so.

This is also true for a profit maximizing firm. In this case, the producer will max profits where the price is equal to the cost of providing the last unit sold. Note that in this, sunk costs are entirely moot. For a bookstore, rent won’t be part of the price of the book. The proof of this is simple. Suppose the bookstore’s rent doubled, thus lowering its profits. If it could make up that profit by raising its prices, then it would be violating the assumption that it was maximizing profits to begin with.

Now look at the author with a pdf version of a book. Since the optimum level of production is where price equals the cost for the last book sold, and since the cost of distributing one more copy of the book is essentially zero, that implies that the fair price the author should charge is zero.

Now look at it from the consumer’s point of view. The same rule holds about optimal consumption being where the price paid is equal to the benefit gained on the last unit consumed. (Actually, the rule is a bit more complicated since we have to get a price/benefit ratio and balance that against all other consumption items, but for understanding the problem we’re dealing with, this technically incorrect rule is close enough.) Suppose that the consumer gets $1 worth of enjoyment out of the book. Then the fair price that she should pay is $1.

Now you can see the nature of this public goods problem. Since a pdf copy of the book costs zero to produce, and since it is so difficult to exclude people from getting a copy, and since the consumer benefits by more than zero, we have a severe disconnect in everybodies’ optimizing goals. In a compteitive market, all these optimizing goals veer in on one another–that’s the Invisible Hand*. But there a lot of breakdowns that can happen–these are market failures. (A libertarian, BTW, is a person who thinks that the market can solve market failures.)

There is has been a lot of work done on how to deal with this sort of market failure, mostly in terms of publically provided goods such as police protection. I’m not that familiar with the work on intellectual property.

Anyway, I know that you still don’t have an answer, and I apologize for not providing one. I do hope I that I have given a little insight into the nature of the problem.

*The Invisible Hand maximizes well-being, it doesn’t guarantee a distribution that we would call acceptable. That’s another problem free-market types don’t want to deal with–but they’ll have to start a new thread for that.

51

I’m not sure you have. You have waved your hands and eliminated the “sunk costs”. I’m not sure that is a valid position to take. From the sellers point of view why would he continue in business if his profits do not cover his costs. More importantly, why would he continue if he saw no way to recover the investment and some profit. You have heard the admonishment against throwing good money after bad have you not?

The problem gets worse when you apply the idea to Intellectual Property. You assume that the book is written and the only costs considered are those associated with copying it. While at any given time this may be true for a particular book, it is also true that other books are still to be written. There are certainly other rewards for writing a popular book besides money. However, it cannot be denied that money is a powerful motivator for creating new books as well.

And this, of course, totally ignores the more important notion of Intellectual Property Rights themselves. I understand that we don’t want to go down that road, so I’ll just say that there are more important reasons to enforce Intellectual Property Rights than simply encouraging more art production.

52

I don’t see how a musician deciding to give copies of his music away for free could trample on the protections of authors and painters. If they don’t want to give copies of their work away for free, they don’t have to.

Whether or not you think it’s warranted, it’s certainly a reasonable desire. Downloaders want free copies of songs, and there are hundreds of thousands of people willing to provide them. The only thing stopping them from doing so is an unenforceable law. From a practical standpoint, it’s foolish to ignore that - people can and will trade songs for free, and if the creators want to make money, they’ll have to find another way to do it.

53

Ok, this is the system we have now. I thought we were proposing a new system.

Well, no, I don’t think it is reasonable to want something for free without regard to the person who created that thing. It is understandable, but so is theft and murder in some cases. That does not mean it is forgivable.

Right. The law is unenforceable right now. But the RIAA is quickly catching up. I think it would benifit everyone if we could come up with a model for trading music online which did not trample on an artist’s rights. It would cut off the political support for the civil rights violations now being enacted.

Or they’ll have to find a way to enforce the law. I’m sorry, but the historical, economic, and quite a bit of the political forces arrayed against the music pirates are quite formidable. We have succesfully regulated ocean travel. We have succeeded in restricting the information broadcast throgh the air. Right now we have a sort of anonymous privacy online. But this could easily be brought low by appropriate legislation. It would certainly not be popular with people who use the internet, but there is not much Constitutionally to prevent requiring traceable identification for online transactions.

I would much rather we did not come to that. Unfortunately, I’m not sure how to avoid it.

54

IANYL, and even though this is what I studied at law school (and technically practice (as listed in my firm’s bio)), my following comments are a general overview and is probably not as detailed (even if marginally) if you went to your own lawyer; however, this scenario still fits well within the normal realm of copyright law:

The fact that you make no profit now, that you are not published, that people “sharing” your book are not making any profit does not limit you from any damages. First things first, you should copyright your finished work. (I suppose you could copyright works in progress, but I don’t think that will really afford you any real protection.) Anyway, even if you fail to register your copyright (relatively easy, I believe the library of Congress has info – and you don’t even need a lawyer), you can still receive damages.

The difference in damages depends on when the infringement occurred in relation to when the author registered the copyright. If the infringement occurs before the copyright, then the author is entitled to actual damages. Actual damages still includes a somewhat theoretical assement of damages by having experts testify what the plaintiff would have made, but for the infringement; and, then a trial on damages would occur (assuming procedural similarities in regular civil matters). The trial would also include such issues as time at which you published, sales, popularity, genre, etc.

If the infringement occurs after the registration of the copyright, then the plaintiff is entitled to stautory damages which I believe I last saw them was at $20k per instance (of course a trial on damages could also occur depending on what the statute says, or perhaps $20k is not enough to cover your loss).

As for controls that you have, you can put notice that the .pdf version is confidential, that is copyrightable by you (that you have to be clear about – which really doesn’t afford you any more protection or garner any more liability for the infringer). When you’re ready to sue, that’s when you get a lawyer.

55

** Sam Stone’s** first post in this thread provides the most simplest answer to the OP, imo a good post. I’m a big fan of this model and I’m not a huge fan of changing the law (what can I say, I’m lazy ;)) The current model as it stands, as described by other posters, is that the author makes little to no money off the actual copyright, i.e. for simply being the author.

The RIAA (and other greedy-ass bastard-pirates that believe in this model) force these contracts on the artists b/c they have an apparent monopoly on the entire model of distribution (from studio time to marketing to air-play). They incur “the risk” of distribution for the artist, that is, the author only has to concentrate on creating, for which they will receive a nominal award/fee/whathaveyou and the music company bears the risk and cost of putting the song out on the market. This risk is a joke b/c the music company benefits from the economies of scale inherent in the industry, and work against others from entering (sorry no cite - but find any number of anecdotes of people trying to get airplay on a radio station for their single). So what you have is these “standard” contracts which give the artists a lot of publicity by hardly any economic gain as all the upside is reaped by the music company.

To really change the model is to put more laws on the physical (as opposed to the digital) distribution of music, notably, against the RIAA. If artists are so concerned about gaining economic viability, they can dole through the time performing on the road building a fan base, etc. Or, write laws forcing distributors to work on a commission (of sorts) for the amount of music they sell - that is, if the RIAA is still intent on keeping the machine they built. Or alternatively, the RIAA will have to make the CD more attractive to buy (as others have also posted).

Changing or creating digital IP laws may or may not be beneficial right now. As others have correctly posted, it is way more likely than not that the artist is not at all hurt by the on-line sharing of music.

56

When I have a desire, and I know that hundreds of thousands of people are able and willing to fulfill that desire, I consider it a reasonable desire. (Whether all reasonable desires should be legal to fulfill is another question, but we’re talking about pragmatic economic choices, not legality.)

A desire for a hamburger with mayo on it is reasonable because I can get it at any burger joint, and if McDonald’s says they can’t sell me a burger with mayo, then I’m going to consider them unreasonable. That’s true, IMO, regardless of the relationship between the restaurants and the ultimate source of mayonnaise, or whether the restaurants who sell burgers with mayo are “supposed” to be doing it.

That’s debatable, at best. Peer to peer technology is constantly advancing, and there are at least three systems that mask the identities of everyone involved, making it impossible for anyone (or even you yourself) to know what data your computer is hosting. The only advancement the RIAA has made is filing more lawsuits, which might bring in a few thousand bucks, but it’s a huge PR loss.

That’s also debatable. This Wired article (admittedly an old one) suggests that the right to anonymous speech is protected by the First Amendment. Here’s a newer ACLU release about an appeals court ruling protecting the right to anonymous online speech:

57

Let’s not go too deep into the reasonableness of desires. Suffice it to say that I think a desire for an undearned thing is unreasonable and we agree to disagree.

The case you cited, I think, proves my point. If the RIAA can show that a particular identity downloaded copyrighted material then it may be able to get the anonymous nature of that identity broken. All we need now is technology that the court can use to break this anonymousness.

I’m not sure if I’ve been clear on this. But I believe very strongly that online anonymity is important. It is definately a good thing. For all of the reasons mentioned in the Wired article. My contention is that illegal activity over the net may in fact cause a backlash by authorities. That this backlash may result in an erosion of some of these rights.

For instance, think about the way calls are traced. If we required that all ISPs keep certain logs for a period of time the police might have a ready made set of records to examine to determine who went packets where and when. We could also require that all packets contain a traceable identity marker. We could put in place restrictions so that only courts could trace such identities and thus not trample too many online rights, but it would certainly be a foot in the door. And most ominously, it may not be sufficient to stopping file swapping.

Think of the drug war. We’ve been comprimising individual rights for decades without any sign that we will stop anytime soon. The reason, of course is that people believe drug users to be really nasty people. When some political party realizes that they might be able to pick up votes by linking file sharers with " evil hackers", they may be able to pass all sorts of restrictions to online activities. They would have a readymade funding source. All they need is a way to sell it to voters to turn it into a formidable political force.

By then, of course, it will be an uphill battle to get those rights back. I’d prefer to find some way to define online transactions so that artists rights are respected. Failing that, I’d like some hard research showing that downloading does not harm recording artists. Failing that, I’m afraid we are stuck with voluntarily refraining from downloading copyrighted music without permision.

58

I don’t believe any such technology can exist without eliminating anonymity.

All packets already have an “identity marker” (source address), and most ISPs already keep enough logs to map an IP address to a person. That’s how they catch spammers.

But that isn’t enough to trace the source of a file, even on a regular web site, and these anonymous P2P systems are far more sophisticated. Each node only knows the address it received a file from and the address it sent a file to, which may or may not be the file’s ultimate source and destination.

Every piece of data is encrypted and distributed to different nodes, and only the person who uploads it and the person who downloads it knows how to decrypt it. Everyone in between is simply a common carrier, like an ISP or phone company, passing on whatever data comes through, without even the ability to know what it is. The only way to put a stop to that is to ban encryption, which I believe has been tried and failed.

The RIAA has already tried to link P2P sharing with child pornography. I suspect that if the anonymous systems are brought down, that will be their downfall - the same system that protects the identity of a political dissident or music sharer also protects the identity of a pornographer or a terrorist. But honestly, that same argument has been tried in the fight over encryption, and it failed.

59

There has always been a very robust ‘fair use’ environment for copywritten works, along with a lot of casual copyright violation that was localized in scope but ignored because it had small economic consequences.

Back when cassettes were around, everyone had mix tapes that they passed around among friends. Audiophile-grade cassette recorders weren’t just used to copy albums to put in the car. People could and did use them to swap their favorite music with friends.

You can go into a bar any night of the week and listen to bands covering material by other bands. None of them pay for performance rights, despite the fact that they are using the music commercially.

Fans of bands routinely recorded ‘bootleg’ tapes of concerts and passed them between other fans.

The problem now is that technology is allowing this type of behaviour to have large impact due to the sheer scale of the sharing. So now the record companies want to clamp down. But their proposed solutions are so invasive and destroy so much of what is already accepted that it threatens to have a serious chilling effect on the culture.

Rather than talk about what’s wrong with file sharing, perhaps a better place to start would be to talk about what’s wrong with the record industry, and why there is such a demand for file sharing in the first place.

The first problem is that record companies have an antiquated delivery model. Pressing CD’s and distributing them to stores is a crappy way to deliver music, compared to electronic transfer. That’s strike one against them.

The next problem is that the record industry behaves like an oligarchy or a monopoly. Clearchannel owns a huge percentage of radio stations, and you only get to hear what they program.

Radio stations themselves are becoming an archaic technology. They cost huge amounts to set up and run, and the FCC limits the number that can exist in an area. The result is that they have to program music that appeals to specific groups that they have targeted. It is next to impossible to hear certain styles of music on the radio in certain places.

Again, there is a solution - internet radio allows for an unlimited number of channels, and would normally allow people to find what they want to hear. But again, the record companies have stepped in the way and crushed the nascent industry with huge licensing fees. Internet radio producers are more than happy to pay the same fees that broadcast radio does, but the record companies refuse because they don’t control the distribution network.

The result is a chilling effect on the musical landscape. We have mega-artists that are supported by their labels and given huge amounts of radio and video play. But if you’re not one of this rather small group, it can be very slim pickings. Warren Zevon, despite being one of the most acclaimed singer/songwriters of his era, only sold 30-40 thousand copies of his last few albums before The Wind. Why? Because he’s not commercial enough for the major labels to carry him, and his music crosses genres and doesn’t fit into any of the pre-defined categories for radio airplay. In essence, his music was shut out of the marketplace. And I can name dozens of great artists who are in the same boat: John Prine, The Jayhawks, great Blues artists like BB King, bluegrass players like Alison Krause (although country stations pick up some of that), and alternative bands like Radiohead and artists like Beck, who didn’t even sell 500,000 copies of maybe the best album of his career, Sea Change.

Now, the record companies used to be important. Producing albums was expensive as hell, and the only way to distribute music was also very expensive. So the record companies were a critical part of the chain.

This is no longer true. Great albums can be and have been produced using Pro Tools or Cakewalk Pro, and a decent home studio can be set up for $20,000. The low cost of entry has allowed many independent, low cost studios to spring up. And music can be distributed on the internet. The record companies are dinosaurs, and they aren’t really needed any more.

This is the real fight they are fighting. It’s not just copyright infringement by downloaders - it’s the collapse of their entire distribution chain that causes them to lose sleep at night. Their answer is to lock artists into long contracts, use the heavy hand of government to expand their power and assign copyrights to them by making artist works ‘work for hire’, and to try to squash new technologies as they arrive.

Some artists are already waking up to this. When a major label told Wilco it would not publish “Yankee Hotel Foxtrot” because they thought it was unsalable, the band bought the album back with their own money and posted it on their web site for free. This got them massive attention and buzz (it helped that the album was truly outstanding), and the buzz culminated in another label buying the album for twice what the band paid for it. And in the end, the album entered the charts at #13, the highest the band ever had by far, despite its being available absolutely free on the internet for almost a year before that.

This whole story indicates several important things: 1) The record companies are squashing great music. For every band like Wilco that has the balls to buy their album back, how many others just walk away? 2) The threat of the internet to albums is overblown. 3) Real fans of a band want to buy the CD anyway, even if they have the MP3’s already. If file sharing really killed album sales, why did YHF do so well?

In my experience, using a file sharing system like Kazaa has caused me to buy WAY more CD’s than I did before. For the simple reason that now I can sample music first, and I find lots that I like. Before Kazaa came along, I just stuck with my old classic rock and blues CDs. The only radio I listened to was classic rock, so I never got any exposure at all to new acts. Now my CD collection is full of bands like The White Stripes, Wilco, The Jayhawks, Radiohead, etc. Bands I had never heard before, because they only radio I listened to never played them.

Kazaa and other peer-to-peer networks are the World Wide Web for music. Imagine how much poorer we would be if the Web had been choked off in copyright battles and licensing concerns. Kazaa allows music lovers to browse the landscape like the web allows browsing through documents. And while I understand the concerns of legitimate copright holders, I am certain that we will be giving up a whole lot if they prevent us from accessing the musical culture through peer-to-peer networks.

60

Thanks! Yes, I kind of knew this, and yes, I definitely intend to register the finished book.

This is very useful information. Thank you very much.

Right now, only a few people have “access” to the unfinished manuscript in PDF version. Because these people are professionals, I doubt that they will distribute this manuscript via P2P.

The thing is, because of the way I know things are, there is no way I intend to willingly release the PDF version outside of a few trusted professionals, ever. I know how people work, and my web logs tell me that many of my website visitors are archiving and downloading the entire site (which is similar in content to the book). It’s okay for them to do that to the site—that’s what I intended—but the book has taken a lot more work and has a lot more stuff and I’m not going to allow several months of that work end up being passed around for free on P2P.

Now, as it works now, I don’t think that will happen, as long as I don’t distribute the PDF version. No one is going to scan the book digitally and distribute it—it’s not that big of a deal! Copyright laws protect me and the professionals who have access to the file (the printers, etc.) are educated enough about copyright to not have any interest in “sharing” my file. But if a visitor to my site—someone who had a keen interest of the subject that the site (and book) is about—had a copy of the book on PDF, then yeah, I am positive that they’d distribute it to their friends and through P2P.

It has been said on this thread (and many times on other threads) that it should be allowable to legally distribute someone else’s copyrighted works, “as long as no profit is being made.” And from my perspective, that’s a bad idea. I am not expecting to make the Big Bucks from this book (it’s mostly a labor of love) but damned if I’m doing all this work just to see people share it under the premise that “they’re not making any profit, so it isn’t hurting anyone.” The hell it isn’t! I don’t expect to sell a huge amount of copies, but I have no doubt that I’ll sell a lot less if people can spread around free copies of it.

If it were legal for people to distribute any copyrighted work “for free” in such a way, I’d probably think twice about doing the work in the first place—or at least I wouldn’t work on it in the same way. There are other ways to make money, and certainly, this way wouldn’t be one of those ways.