You Can’t Compete With Tim Lee

by on February 15, 2007 · 16 comments

But I can – to be the first to link to Mike Masnick’s very interesting post on the “can’t compete with free” meme.

It seems like a genuine problem content producers have, competing with those who would share content without regard to copyright law. But Mike points out that they have the same problem as the producer of any good. Competition drives their profits to zero, forcing them to innovate, which content producers seem reluctant to do.

In the comments, Mike is defending himself against some meritorious challenges, though. The marginal cost of distributing intellectual goods may be (effectively) nothing, but the marginal cost of the goods themselves is something above that. Content producers are looking at competion from those who would offer the same products at below marginal cost.

  • http://weblog.ipcentral.info/ Noel Le

    Mr. Masnick raises some interesting points, but even with his examples, the argument still seems a bit too abstract.

    Mr. Masnick, what policy reforms would your idea entail? Does your argument apply to copyrights and patents? Also, do you address different industries that leverage the Internet for distribution of digital goods/services (i.e. movies, ebooks, music, software)?

    I understand, Mr. Masnick, that you’re approaching IPRs from the foundational/ theoretical perspective -attacking the problem of public goods justification for IPRs- that is interesting, but your argument will be more clear if you spell out the policy implications.

  • http://weblog.ipcentral.info/ Noel Le

    Mr. Masnick raises some interesting points, but even with his examples, the argument still seems a bit too abstract.

    Mr. Masnick, what policy reforms would your idea entail? Does your argument apply to copyrights and patents? Also, do you address different industries that leverage the Internet for distribution of digital goods/services (i.e. movies, ebooks, music, software)?

    I understand, Mr. Masnick, that you’re approaching IPRs from the foundational/ theoretical perspective -attacking the problem of public goods justification for IPRs- that is interesting, but your argument will be more clear if you spell out the policy implications.

  • http://techdirt.com/ Mike Masnick

    Honestly, this is not a “theoretical” perspective. It’s a very real one, where policy is the least of my concerns. I’m trying to show businesses that they’re better off by not enforcing their intellectual property rights. If they realize that, and stop enforcing them, then the policy implications are meaningless.

    As for Jim’s point, you are discussing something different. You are absolutely right that the marginal cost of *creating* a digital good is higher than zero — but I’m not talking about that (or, rather, I’m addressing it separately in a later post). I’m talking about what happens once the good is created.

    As a little hint, the fact that the cost of creating the good is higher than zero is actually hugely important in the model I’m laying out — because you want to find the things that have a non-zero marginal cost and use them to your advantage. But, we’re getting there… :)

  • http://techdirt.com/ Mike Masnick

    Honestly, this is not a “theoretical” perspective. It’s a very real one, where policy is the least of my concerns. I’m trying to show businesses that they’re better off by not enforcing their intellectual property rights. If they realize that, and stop enforcing them, then the policy implications are meaningless.

    As for Jim’s point, you are discussing something different. You are absolutely right that the marginal cost of *creating* a digital good is higher than zero — but I’m not talking about that (or, rather, I’m addressing it separately in a later post). I’m talking about what happens once the good is created.

    As a little hint, the fact that the cost of creating the good is higher than zero is actually hugely important in the model I’m laying out — because you want to find the things that have a non-zero marginal cost and use them to your advantage. But, we’re getting there… :)

  • Doug Lay

    Noel, I’m not sure why you’re peppering Mike Masnick with questions on a blog other than Mr. Masnick’s.

    Jim, you’re right about what has changed (the Internet has reduced distribution costs for digital content to effectively zero), and what hasn’t changed (quality content still costs money to create – usually).

    I believe the Internet and robust copy protection of digital content objects are – surprise, surprise – pretty much incompatible with each other, and forced to choose between the two I’ll pick the Internet, thanks very much. So I hope that robust examples and models for paid content can emerge in an environment where content objects get copied like crazy, at effectively zero cost.

    What would such models and examples look like? Hopefully we’ll see some visionary entrepreneurs answer that question soon. (If I was a visionary entrepreneur, I probably wouldn’t be here commenting.) In the meantime, I’ll speculate that we’ll see creators looking for more up-front payments (sponsorships?), as well as directing energies toward more interactive, networked products with a complex server-side component that can’t be easily mimicked.

  • Doug Lay

    Noel, I’m not sure why you’re peppering Mike Masnick with questions on a blog other than Mr. Masnick’s.

    Jim, you’re right about what has changed (the Internet has reduced distribution costs for digital content to effectively zero), and what hasn’t changed (quality content still costs money to create – usually).

    I believe the Internet and robust copy protection of digital content objects are – surprise, surprise – pretty much incompatible with each other, and forced to choose between the two I’ll pick the Internet, thanks very much. So I hope that robust examples and models for paid content can emerge in an environment where content objects get copied like crazy, at effectively zero cost.

    What would such models and examples look like? Hopefully we’ll see some visionary entrepreneurs answer that question soon. (If I was a visionary entrepreneur, I probably wouldn’t be here commenting.) In the meantime, I’ll speculate that we’ll see creators looking for more up-front payments (sponsorships?), as well as directing energies toward more interactive, networked products with a complex server-side component that can’t be easily mimicked.

  • http://enigmafoundry.wordpress.com/ enigma_foundry

    It seems like a genuine problem content producers have, competing with those who would share content without regard to copyright law.

    Those who chose to make their own work available for free are in no way violating copyright law. Please stop repeating this stupid meme.

    I believe the Internet and robust copy protection of digital content objects are – surprise, surprise – pretty much incompatible with each other,

    The incompatibility is between the freedom of speech and robust DRM. If you have freedom of speech, someone will figure how to break the DRM, and the only way to stop the breaking of the DRM is to break the First Amendment. Ask Ed Felten or Dmitry Skylarov or DVDJon.

    When it comes to chosing freedom of speech or someone’s business plan which depends on the underming of the First Amemdment, the choise to really be very simple.

    That the choice is not simple is a testament to the mis-information machine of the corporate fascists.

  • http://enigmafoundry.wordpress.com eee_eff

    It seems like a genuine problem content producers have, competing with those who would share content without regard to copyright law.

    Those who chose to make their own work available for free are in no way violating copyright law. Please stop repeating this stupid meme.

    I believe the Internet and robust copy protection of digital content objects are – surprise, surprise – pretty much incompatible with each other,

    The incompatibility is between the freedom of speech and robust DRM. If you have freedom of speech, someone will figure how to break the DRM, and the only way to stop the breaking of the DRM is to break the First Amendment. Ask Ed Felten or Dmitry Skylarov or DVDJon.

    When it comes to chosing freedom of speech or someone’s business plan which depends on the underming of the First Amemdment, the choise to really be very simple.

    That the choice is not simple is a testament to the mis-information machine of the corporate fascists.

  • Doug Lay

    enigma, I think you’re badly misreading Jim’s post. In the sentence that you slam, I’m pretty sure he’s talking about competition on the distribution end – i.e. file sharing – not on the production end. There’s no indictment of open soure, or Creative Commons in his post, not that I can see anyhow.

    And it’s hard to deny that Internet file sharing presents a formidable challenge to content-based businesses both good and bad. I like seeing mastodon business models fall to natural selection just as much as the next guy, but creative folks still need to find a way to get paid.

    Also, American courts haven’t so far been very friendly to the idea of code deserving First Amendment protection. I wish that it were so, but so far it’s not. The good news (yep, I consider it good news) is that DRM keeps on getting cracked, no matter how long the DMCA anti-circumvention provision stays on the books.

  • Doug Lay

    enigma, I think you’re badly misreading Jim’s post. In the sentence that you slam, I’m pretty sure he’s talking about competition on the distribution end – i.e. file sharing – not on the production end. There’s no indictment of open soure, or Creative Commons in his post, not that I can see anyhow.

    And it’s hard to deny that Internet file sharing presents a formidable challenge to content-based businesses both good and bad. I like seeing mastodon business models fall to natural selection just as much as the next guy, but creative folks still need to find a way to get paid.

    Also, American courts haven’t so far been very friendly to the idea of code deserving First Amendment protection. I wish that it were so, but so far it’s not. The good news (yep, I consider it good news) is that DRM keeps on getting cracked, no matter how long the DMCA anti-circumvention provision stays on the books.

  • http://weblog.ipcentral.info/ Noel Le

    Masnick, it does sound like you are making a policy argument, if it turns out you are only talking about information goods.

  • http://weblog.ipcentral.info/ Noel Le

    Masnick, it does sound like you are making a policy argument, if it turns out you are only talking about information goods.

  • http://www.digitalproductions.co.uk Crosbie Fitch

    Half a dozen years ago I wrote this:

    The Digital Art Auction

    A mechanism for collectively determining the equivalent retail price of a digital good, which is charged before distribution, i.e. all participants, producer and customers, determine an equitable amount of money they’d be willing to exchange for the digital good. If the deal is acceptable, all customers pay the same price. If it isn’t, no-one pays anything, nothing is released.

    Art for money, money for art.

  • http://www.digitalproductions.co.uk Crosbie Fitch

    Half a dozen years ago I wrote this:

    The Digital Art Auction

    A mechanism for collectively determining the equivalent retail price of a digital good, which is charged before distribution, i.e. all participants, producer and customers, determine an equitable amount of money they’d be willing to exchange for the digital good. If the deal is acceptable, all customers pay the same price. If it isn’t, no-one pays anything, nothing is released.

    Art for money, money for art.

  • http://www.uglyshz.com/blog Jon L

    Non-zero cost is still an understatement, but I think the most pertinent line to my business is the comment that

    “Competition drives their profits to zero, forcing them to innovate, which content producers seem reluctant to do.”

    Mike is spot on, as our content business AND associated labor unions, has multi-billions of dollars tied up in making content production very expensive.

    Between the lawyers, the insurance, the labor unions and the “star” economy, there is little wiggle room for innovation.

    DGA, WGA and SAG/AFTRA and the IATSE labor unions all have similar high cost to doing business, but the biggest problem is the star costs. (and unfortunately, “star” can now be extended to writers and directors too).

    These are driven not by the content producers (trust me, most producers would rather *not* work with stars if we didn’t have to), but by the consumers themselves, and in turn by the financial institutions providing production funds for the content.

    Audiences at large ask “who’s in it” when they consider watching a lot of content – at least where films are concerned. Financiers in our business actually have ROI’s for each A, B, and C level actor in town and will chart the risk and return on your content based on what kind of an audience that star has drawn in the past. If they haven’t drawn enough of an audience, you will not get your financing.

    It’s a giantly difficult cycle to get out of, unless you’re interested in and can afford to make films or television or Internet shows without making any money at all (often investing months and years of your life in a single project), and can get people to work for free. Neither of which is a fun place to be. Alternately, you can also be indepedently wealthy and just finance your own stuff – which some people do.

    I currently work very hard to make as much of production and delivery digital as I can in my work which saves (in some cases) weeks of prep time, days of shooting, and weeks of post production if planned and excuted with the right toolsets. At the end of the day however, it’s the business model itself that needs the innovation.

    If there’s any industry that desperately needs innovation, it’s ours. We could really use new ways to get deals done without $500/hour legal counsel, without agents who drive prices up by multiples on talent, and without insurance polices that costs of tens of thousands of dollars for many millions in coverage are what’s needed for us to reform.

  • http://www.uglyshz.com/blog Jon L

    Non-zero cost is still an understatement, but I think the most pertinent line to my business is the comment that

    “Competition drives their profits to zero, forcing them to innovate, which content producers seem reluctant to do.”

    Mike is spot on, as our content business AND associated labor unions, has multi-billions of dollars tied up in making content production very expensive.

    Between the lawyers, the insurance, the labor unions and the “star” economy, there is little wiggle room for innovation.

    DGA, WGA and SAG/AFTRA and the IATSE labor unions all have similar high cost to doing business, but the biggest problem is the star costs. (and unfortunately, “star” can now be extended to writers and directors too).

    These are driven not by the content producers (trust me, most producers would rather *not* work with stars if we didn’t have to), but by the consumers themselves, and in turn by the financial institutions providing production funds for the content.

    Audiences at large ask “who’s in it” when they consider watching a lot of content – at least where films are concerned. Financiers in our business actually have ROI’s for each A, B, and C level actor in town and will chart the risk and return on your content based on what kind of an audience that star has drawn in the past. If they haven’t drawn enough of an audience, you will not get your financing.

    It’s a giantly difficult cycle to get out of, unless you’re interested in and can afford to make films or television or Internet shows without making any money at all (often investing months and years of your life in a single project), and can get people to work for free. Neither of which is a fun place to be. Alternately, you can also be indepedently wealthy and just finance your own stuff – which some people do.

    I currently work very hard to make as much of production and delivery digital as I can in my work which saves (in some cases) weeks of prep time, days of shooting, and weeks of post production if planned and excuted with the right toolsets. At the end of the day however, it’s the business model itself that needs the innovation.

    If there’s any industry that desperately needs innovation, it’s ours. We could really use new ways to get deals done without $500/hour legal counsel, without agents who drive prices up by multiples on talent, and without insurance polices that costs of tens of thousands of dollars for many millions in coverage are what’s needed for us to reform.

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