Friday, April 17, 2009

It's an Economy

With the announcement today of the conviction of the Pirate Bay crew, various news blogs carried the news, and as usual, the angry chorus of righteous indignation by the file-sharing fans in the comments below each news article. I declined to participate, because there's not much chance my words would be heard.

However, there were some memorable comments that I can only chuckle about, sadly.

"I support creative commons but I'm against IP." I've seen this one time and again. It's a sad result that an agreement built on top of copyright is seen as a counter to copyright. It's the same way with the GPL, the GNU General Public License that is the basis of much of open source software. CCC and GPL are copyright licenses. They are successful because they have leveraged the strong (and getting stronger) protections for Intellectual Property, to the ends their supporters want.

The howls of the angry mobs that can be seen in today's comment sections of the Pirate Bay news are the 21st century version of the 19th century Luddites (wiki link). The economy has shifted and the people who don't understand it want to break the textile machines (or DRM) and insist that manufacturers do it their way.

We are shifting from an economy that makes physical objects to one that buys and sells IP. The rules about theft that applied for apples and bolts of cloth have had to change rapidly to allow for nano-cost duplication of digital objects of value; songs, movies, ebooks, etc. It's not strange that many people don't realize that yet. It's sad that the Pirate Bay people, and a lot more like them, will go to jail because they don't get it.

This shifted 21st century economy, what is it? Pretty simple. The Basics:

Pattern Cost + ( Unit Volume x Unit Production Cost)

must be equal to or less than

Other Income + (Unit Volume x Unit Consumer Price)

or else the creator of the product will go out of business.

Other Income is startup funding or a Patron of the Arts gift or the artist's dwindling bank account. Where the product is free to the consumer, this has to come from somewhere. Sometimes advertising can make up it up, sometimes people burn up their life savings.

In traditional manufacturing, the Pattern Cost is divided up among all the sold units and becomes part of the difference between Unit Production Cost and Unit Consumer Price. The link between UPCost and UCPrice is obvious to everybody, and the popular myth is that, because digital duplication costs are miniscule, the price should go to zero. The reality is, that pesky Pattern Cost won't go away, and because of the history of old-style manufacturing, most consumers have no idea how big it actually is. It was always hidden before.

An ethical marketplace can exist with digital distribution. The various music stores are proof that it can be done. Now it's just a matter of trial and error finding the correct mix of prices that can sustain the artists and the merchants without souring the customers.

What's really not ethical are the downstream duplicators, leeching off the ethical markets. Whether CD bootleggers lining their own pockets or the thriving torrent websites, whether done free by gift culture people gaining their own cred or the commercial sites selling advertising–none of them feeding anything back up to cover that Pattern Cost problem.

To misquote a politician, "It's an economy, stupid!" The people who don't understand that are likely to get a few bruises before it's all done.


Chris said...

It is true that the GPL is a copyright license, but I kind of think that is a default in this IP environment. If that crowd could do away with IP completely they would, even their own copyright.

You could be right about the economy moving to IP, but I think it is a little more complicated than that. I am not sure if the people want DRM and they are voting with their computers because they believe the politicians are in league with big business and not with the common man. The current banking fiasco is a prime example.

For every Pirate Bay that is shut down 10 more wannabes spring up. It is a digital revolution that is not going away anytime soon.

I think there can eventually be a compromise, but I think the price of IP is going to have to come down. Way down.

The market is already going this way anyway. The best software is free. Kids watch YouTube now, instead of ABC, etc.

Henry Melton said...

Chris, you're right that DRM is on everyone's hate list, and it's the next thing I'll be writing about. However, I doubt that governments will be gutting their own economies, no matter how popular the free file downloads are. It's just like in the 1800's. The Luddite movement was popular too.

Chris Meadows said...

I find it a little odd that you're comparing the Pirate Bay people to Luddites. Seems to me that the Luddites are the industries that have been taking so long to adapt to the digital marketplace—trying to protect their aging business models with lawsuits and legislation rather than coming up with newer models.

The music industry only did it because Apple finally dragged them kicking and screaming into it, and the movie industry is barely starting. Apart from a few shining examples like Steam, nobody in the computer game industry is anywhere near it yet (and in fact, they want to take a step backward and eliminate the used game market altogether). And so on.

I'm not one of those who would wave a little flag and protest that "information wants to be free." But still, if consumers were satisfied by the purchasing options currently available on the market, there wouldn't be nearly so many illicit downloads. (I'm not so foolish as to imagine there wouldn't be any, but surely there would be fewer.)

If I want to download a movie and watch it right away, for instance, I'd be willing to pay some sum for that instant gratification. But if I pay my hard-earned money for that movie, I want to own that movie—to have the option of watching it again in the future, or taking it over to a friend's house and showing it to him. I could do that (without the instant gratification) if I shelled out for a DVD—why not with a digital download?

As it stands right now, the only way I could do that would be to download it illicitly via peer-to-peer, because the currently existing pay-for-download-and-watch options won't let me own the movie.

Before the information age, people wanting features that publishers wouldn't provide just had to shut up and take it—but when computers make it so easy to get what you want, silly little things like laws that it (erroneously) feels unlikely anyone will see you breaking are not much of a barrier.

You could call it "entitlement," I suppose. But it's easy to feel "entitled" to have something you really want, just because you really want it.

Henry Melton said...

The idea that the Pirate Bay/unauthorized copying crowd are similar to the Luddites came when reading the history of the Luddite movement. The analogies are obvious. Technology has made an economic change and people are willing to break laws to force their preconceptions onto a changed reality. Both RIAA and PB seem willing to use unethical tactics in their war, but so did the Luddites and the British government. Where the history lesson leads, however, is to the brutal crackdown on the popular Luddite movement by the government. The Luddites were very popular and had some big names on their side. But just as the Luddites were trying roll back the clock to an earlier era, the torrent crowd are trying to take advantage of a mistaken understanding of the underlying reality. The governments of the world seem to understand, and are uniformly backing the copyright based, IP defensive position. You can build a sustainable economy on that. You can't build one on a broken myth.

Computers make it easy to copy and the producers should come up with a better model, you say. What if there isn't a magic bullet? People have been trying everything, but nothing seems to work beyond a few isolated cases. Find a solution and whole industries would be glad to use it. But until then, the choice seems to be giving up IP creation, or using the existing hundreds of years old copyright legal infrastructure.

Brett said...

Putting aside the internet for a second, society is built on the sharing and lending of tools and knowledge at no cost when the recipient is not seeking to benefit monetarily from the exchange. Even without the internet people share cd's, dvd's and books, and now with the internet even the music industry is realizing the upside of sharing with free track releases. The fundamental flaw of the intent of DRM is that it tries to make this basic social act illegal, thus the rise of Pirate Bay and p2p in general.

The future fibre speeds of the home internet connection mean that it will be feasible to replace bittorrent with almost anonymous friend to friend networks which have the same impact as todays Pirate Bay. In this future world we're potentially back to suing hapless grandparents for allowing their grandchildren to use their computers.

The challenge is not for industry but for governments to build the very real (but discounted) cost of sharing into the cost of the network. Historically taxes pay for libraries, public television, and public radio broadcasters in effect subsidizing to some degree the sharing of IP at marginal cost. The time is right to do the same for the internet, and the technology is there to do it.

I think the futility of preventing individuals sharing is best demonstrated by doing a poll of under 30s who actually work in industries affected by filesharing. I felt the need to reassess my own position when I realised that a majority of internet generation peers (no pun intended) saw no apparent contradiction with their own downloading habits and having their wages paid by selling IP.

Henry Melton said...

Brett, I understand your point that sharing is a social good. Unfortunately, while I'd be happy to feed my works into a government run version of the iTunes store and have them pay me for downloads, I don't see any political will for making that happen, especially when it would have to be international in scope to make it happen. The closest contender is Google Books, branching out to cover all media. I'm actually open to a lot of alternatives, as long as they don't involve trashing the economic loop.