The New York Times today published my response to an oped by Senators Lindsey Graham & Elizabeth Warren calling for a new “Digital Consumer Protection Commission” to micromanage the high-tech information economy. “Their new technocratic digital regulator would do nothing but hobble America as we prepare for the next great global technological revolution,” I argue. Here’s my full response:

Senators Lindsey Graham and Elizabeth Warren propose a new federal mega-regulator for the digital economy that threatens to undermine America’s global technology standing.

A new “licensing and policing” authority would stall the continued growth of advanced technologies like artificial intelligence in America, leaving China and others to claw back crucial geopolitical strategic ground.

America’s digital technology sector enjoyed remarkable success over the past quarter-century — and provided vast investment and job growth — because the U.S. rejected the heavy-handed regulatory model of the analog era, which stifled innovation and competition.

The tech companies that Senators Graham and Warren cite (along with countless others) came about over the past quarter-century because we opened markets and rejected the monopoly-preserving regulatory regimes that had been captured by old players.

The U.S. has plenty of federal bureaucracies, and many already oversee the issues that the senators want addressed. Their new technocratic digital regulator would do nothing but hobble America as we prepare for the next great global technological revolution.

Here’s a new animated explainer video that I narrated for the Federalist Society’s Regulatory Transparency Project. The 3-minute video discusses how earlier “tech giants” rose and fell as technological innovation and new competition sent them off to what the New York Times once appropriately called “The Hall of Fallen Giants.” It’s a continuing testament to the power of “creative destruction” to upend and reorder markets, even as many pundits insist that there’s no possibility change can happen.

This is an important lesson for us to remember today, as I noted in the recent editorial for The Hill about why, “Open-ended antitrust is an innovation killer“:

Those who worry about today’s largest tech giants becoming supposedly unassailable monopolies should consider how similar fears were expressed not so long ago about other tech titans, many of which we laugh about today. Just 14 years ago, headlines proclaimed that “MySpace Is a Natural Monopoly,” and asked, “Will MySpace Ever Lose Its Monopoly?” We all know how that “monopoly” ceased to exist. At the same time, pundits insisted “Apple should pull the plug on the iPhone,” since “there is no likelihood that Apple can be successful in a business this competitive.” The smartphone market of that era was viewed as completely under the control of BlackBerry, Palm, Motorola and Nokia. A few years prior to that, critics lambasted the merger of AOL and TimeWarner as a new corporate “Big Brother” that would decimate digital diversity and online competition.

Accordingly, policymakers should be humble and recognize that, “it’s better to let rivalry and innovation emerge organically,” and only bring in the wrecking ball of heavy-handed antitrust regulation as a last resort, I argued. Technological change and entrepreneurialism has a way of upending and reordering markets when we least expect it. Just ask all those members of the Hall of Fallen Giants.

“Why hasn’t Europe fostered the kind of innovation that has spawned hugely successful technology companies?” asks James B. Stewart in an important new column for the New York Times (“A Fearless Culture Fuels U.S. Tech Giants“).

That’s a great question, and one that I have tried to answer in a series of recent essays. (See, for example, “Europe’s Choice on Innovation” and “Embracing a Culture of Permissionless Innovation.”) What I have suggested in those essays is that the starkly different outcomes on either side of the Atlantic in terms of recent economic growth and innovation can primarily be explained by cultural attitudes toward risk-taking and failure. “For innovation and growth to blossom, entrepreneurs need a clear green light from policymakers that signals a general acceptance of risk-taking—especially risk-taking that challenges existing business models and traditional ways of doing things,” I have argued. And the most powerful proof of this is to examine the amazing natural experiment that has played out on either side of the Atlantic over the past two decades with the Internet and the digital economy.

For example, an annual Booz & Company report on the world’s most innovative companies revealed that 9 of the top 10 most innovative companies are based in the U.S. and that most of them are involved in computing and digital technology. None of them are based in Europe, however. Another recent survey revealed that the world’s 15 most valuable Internet companies (based on market capitalizations) have a combined market value of nearly $2.5 trillion, but none of them are European while 11 of them are U.S. firms. Again, it is America’s tech innovators that dominate that list.

Many European officials and business leaders are waking up to this grim reality and are wondering how to reverse this situation. In his  Times essay, Stewart quotes Danish economist Jacob Kirkegaard of the Peterson Institute for International Economics, who notes that Europeans “all want a Silicon Valley. . . . But none of them can match the scale and focus on the new and truly innovative technologies you have in the United States. Europe and the rest of the world are playing catch-up, to the great frustration of policy makers there.”

OK, but why is that? Again, it comes down to those different cultural attitudes about risk and the stark differences over the potential lessons to be gained from allowing firms, business models, and entire professions to fail and/or be significantly disrupted.

Stewart quotes German economist Petra Moser on this point. He noted that “Europeans are worried. . . . They’re trying to recreate Silicon Valley in places like Munich, so far with little success,” she said. “The institutional and cultural differences are still too great.” In Europe, stability is prized,” she says. Here’s the key passage from the Stewart piece elaborating on this point:

Often overlooked in the success of American start-ups is the even greater number of failures. “Fail fast, fail often” is a Silicon Valley mantra, and the freedom to innovate is inextricably linked to the freedom to fail. In Europe, failure carries a much greater stigma than it does in the United States. Bankruptcy codes are far more punitive, in contrast to the United States, where bankruptcy is simply a rite of passage for many successful entrepreneurs.

Moreover, he notes, “Europeans are also much less receptive to the kind of truly disruptive innovation represented by a Google or a Facebook.”

And that remains the heart of the problem for Europe. What many leaders there fail to appreciate, as I noted in my earlier essays, is that:

Innovation is more likely in systems that maximize breathing room for ongoing economic and social experimentation, evolution, and adaptation. Societies that appreciate those values—and allow them to influence both social norms and policy decisions—are likely to experience greater economic growth. By contrast, those that deride such values and adopt a more precautionary policy approach are more likely to discourage innovation and languish economically.

The remarkable aversion to failure and its affect on deterring entrepreneurialism and long-term growth in Europe and elsewhere cannot be overstated. As I will argue in a forthcoming book chapter on this topic, we can conclude, paradoxically, that individuals, institutions, and countries that over-zealously seek to avoid the possibility of certain short-term failures are actually far more prone to potentially far more dangerous and systemic failures in the long-term. Put more simply: the more you try to avoid all the little failures, the harder you fail more generally. This is Europe’s fundamental predicament circa 2015.

Of course, changing long-entrenched cultural attitudes toward risk and failure can be challenging and take many years, even decades. But the path forward–at least in terms of legal policy and regulatory reforms–has been charted by Larry Downes in his new Harvard Business Review essay, “How Europe Can Create Its Own Silicon Valley.” EU policymakers, he correctly observes, will “have to learn to appreciate in the first place the profound role regulation (or the lack of it) plays in the creation of economic value in the Internet economy.” Downes then continues on to itemize some of the policy changes that would help put Europe on the right track to unlock the amazing entrepreneurial spirit that lies dormant across the continent.

Whether or not the Europeans are willing to take those steps remains to be seen. Regardless, the lesson for U.S. policymakers should be clear: If you want to continue to produce world-beating tech innovators, you must avoid Europe’s overly precautionary and highly risk-averse approach to policy. “Permissionless innovation” remains the better default policy position toward new entrepreneurs and technologies, no matter how disruptive they may be in the short-term.

Farhad Manjoo’s latest New York Times column, “Giving the Drone Industry the Leeway to Innovate,” discusses how the Federal Aviation Administration’s (FAA) current regulatory morass continues to thwart many potentially beneficial drone innovations. I particularly appreciated this point:

But perhaps the most interesting applications for drones are the ones we can’t predict. Imposing broad limitations on drone use now would be squashing a promising new area of innovation just as it’s getting started, and before we’ve seen many of the potential uses. “In the 1980s, the Internet was good for some specific military applications, but some of the most important things haven’t really come about until the last decade,” said Michael Perry, a spokesman for DJI [maker of Phantom drones]. . . . He added, “Opening the technology to more people allows for the kind of innovation that nobody can predict.”

That is exactly right and it reflects the general notion of “permissionless innovation” that I have written about extensively here in recent years. As I summarized in a recent essay: “Permissionless innovation refers to the notion that experimentation with new technologies and business models should generally be permitted by default. Unless a compelling case can be made that a new invention or business model will bring serious harm to individuals, innovation should be allowed to continue unabated and problems, if they develop at all, can be addressed later.”

The reason that permissionless innovation is so important is that innovation is more likely in political systems that maximize breathing room for ongoing economic and social experimentation, evolution, and adaptation. We don’t know what the future holds. Only incessant experimentation and trial-and-error can help us achieve new heights of greatness. If, however, we adopt the opposite approach of “precautionary principle”-based reasoning and regulation, then these chances for serendipitous discovery evaporate. As I put it in my recent book, “living in constant fear of worst-case scenarios—and premising public policy upon them—means that best-case scenarios will never come about. When public policy is shaped by precautionary principle reasoning, it poses a serious threat to technological progress, economic entrepreneurialism, social adaptation, and long-run prosperity.”

In this regard, the unprecedented growth of the Internet is a good example of how permissionless innovation can significantly improve consumer welfare and our nation’s competitive status relative to the rest of the world. And this also holds lessons for how we treat commercial drone technologies, as Jerry Brito, Eli Dourado, and I noted when filing comments with the FAA back in April 2013. We argued:

Like the Internet, airspace is a platform for commercial and social innovation. We cannot accurately predict to what uses it will be put when restrictions on commercial use of UASs are lifted. Nevertheless, experience shows that it is vital that innovation and entrepreneurship be allowed to proceed without ex ante barriers imposed by regulators. We therefore urge the FAA not to impose  any prospective restrictions on the use of commercial UASs without clear evidence of actual, not merely hypothesized, harm.

Manjoo builds on that same point in his new Times essay when he notes:

[drone] enthusiasts see almost limitless potential for flying robots. When they fantasize about our drone-addled future, they picture not a single gadget, but a platform — a new class of general-purpose computer, as important as the PC or the smartphone, that may be put to use in a wide variety of ways. They talk about applications in construction, firefighting, monitoring and repairing infrastructure, agriculture, search and response, Internet and communications services, logistics and delivery, filmmaking and wildlife preservation, among other uses.

If only the folks at the FAA and in Congress saw things this way. We need to open up the skies to the amazing innovative potential of commercial drone technology, especially before the rest of the world seizes the opportunity to jump into the lead on this front.

___________________________

Additional  Reading

• DRM for Drones Will Fail, January 28, 2015.
• Regulatory Capture: FAA and Commercial Drones Edition, January 16, 2015.
• Global Innovation Arbitrage: Commercial Drones & Sharing Economy Edition, December 9, 2014.
• How to Destroy American Innovation: The FAA & Commercial Drones, October 6, 2014.
• Filing to FAA on Drones & “Model Aircraft”, Sept. 23, 2014.
• Private Drones & the First Amendment, Sept. 19, 2014.
• [TV interview] The Beneficial Uses of Private Drones, March 28, 2014.
• Comments of the Mercatus Center to the FAA on integration of drones into the nation’s airspace, April 23, 2o13.
• Eli Dourado, Deregulate the Skies: Why We Can’t Afford to Fear Drones, Wired, April 23, 2013.
• Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom (2014).
• [Video] Cap Hill Briefing on Emerging Tech Policy Issues (June 2014).

Claire Cain Miller of The New York Times posted an interesting story yesterday noting how, “Technology Has Made Life Different, but Not Necessarily More Stressful.” Her essay builds on a new study by researchers at the Pew Research Center and Rutgers University on “Social Media and the Cost of Caring.” Miller’s essay and this new Pew/Rutgers study indirectly make a point that I am always discussing in my own work, but that is often ignored or downplayed by many technological critics, namely: We humans have repeatedly proven quite good at adapting to technological change, even when it entails some heartburn along the way.

The major takeaway of the Pew/Rutgers study was that, “social media users are not any more likely to feel stress than others, but there is a subgroup of social media users who are more aware of stressful events in their friends’ lives and this subgroup of social media users does feel more stress.” Commenting on the study, Miller of the Times notes:

Fear of technology is nothing new. Telephones, watches and televisions were similarly believed to interrupt people’s lives and pressure them to be more productive. In some ways they did, but the benefits offset the stressors. New technology is making our lives different, but not necessarily more stressful than they would have been otherwise. “It’s yet another example of how we overestimate the effect these technologies are having in our lives,” said Keith Hampton, a sociologist at Rutgers and an author of the study.  . . .  Just as the telephone made it easier to maintain in-person relationships but neither replaced nor ruined them, this recent research suggests that digital technology can become a tool to augment the relationships humans already have.

I found this of great interest because I have written about how humans assimilate new technologies into their lives and become more resilient in the process as they learn various coping techniques. I elaborated on these issues in a lengthy essay last summer entitled,  “Muddling Through: How We Learn to Cope with Technological Change.” I borrowed the term “muddling through” from Joel Garreau’s terrific 2005 book, Radical Evolution: The Promise and Peril of Enhancing Our Minds, Our Bodies — and What It Means to Be Human.  Garreau argued that history can be viewed “as a remarkably effective paean to the power of humans to muddle through extraordinary circumstances.”

Garreau associated this with what he called the “Prevail” scenario and he contrasted it with the “Heaven” scenario, which believes that technology drives history relentlessly, and in almost every way for the better, and the “Hell” scenario, which always worries that “technology is used for extreme evil, threatening humanity with extinction.” Under the “Prevail” scenario, Garreau argued, “humans shape and adapt [technology] in entirely new directions.” (p. 95) “Just because the problems are increasing doesn’t mean solutions might not also be increasing to match them,” he concluded. (p. 154) Or, as John Seely Brown and Paul Duguid noted in their excellent 2001, “Response to Bill Joy and the Doom-and-Gloom Technofuturists”:

technological and social systems shape each other. The same is true on a larger scale. […] Technology and society are constantly forming and reforming new dynamic equilibriums with far-reaching implications. The challenge for futurology (and for all of us) is to see beyond the hype and past the over-simplifications to the full import of these new sociotechnical formations.  Social and technological systems do not develop independently; the two evolve together in complex feedback loops, wherein each drives, restrains and accelerates change in the other.

In my essay last summer, I sketched out the reasons why I think this “prevail” or “muddling through” scenario offers the best explanation for how we learn to cope with technological disruption and prosper in the process. Again, it comes down to the fact that people and institutions learned to cope with technological change and become more resilient over time. It’s a learning process, and we humans are good at rolling with the punches and finding new baselines along the way. While “muddling through” can sometimes be quite difficult and messy, we adjust to most of the new technological realities we face and, over time, find constructive solutions to the really hard problems.

So, while it’s always good to reflect on the challenges of life in an age of never-ending, rapid-fire technological change, there’s almost never cause for panic. Read my old essay for more discussion on why I remain so optimistic about the human condition.

We don’t expect news reports to exhibit the tightest legal reasoning, of course, but Sunday’s New York Times story on location privacy made a runny omelet of some important legal issues relating to privacy.

The starting point is United States v. Jones, a case the Supreme Court decided last January. The Court held that government agents violated the Fourth Amendment when they attached a GPS tracking device to a vehicle without a warrant and used it to determine the location of a suspect for four weeks. Location information can be revealing.

“Some advocacy groups view location tracking by mobile apps and ad networks as a parallel, warrantless commercial intrusion,” says the story. A location privacy bill forthcoming from Senator Al Franken (D-MN) “suggests that consumers may eventually gain some rights over their own digital footprints.”

Jones was about government agents—their freedom of action specifically disabled by the Fourth Amendment—invading a recognized property right (in one’s car) to gather data. There is little analogy to location tracking by mobile devices, apps, and networks, which are privately provided, voluntarily adopted, and which violate no recognized right. Indeed, their tracking provides various consumer benefits. The Times piece equivocates between the government’s failure to get a legally required search warrant in Jones and uses of data that some may feel “unwarranted,” in the sense of being “uncalled for under the circumstances.”

The first line of Larry Downes’ new Cato Policy Analysis, “A Rational Response to the Privacy ‘Crisis’,” could have been written for the Times‘ sloppy analogy:

“What passes today as a ‘debate’ over privacy lacks agreed-upon terms of reference, rational arguments, or concrete goals,” Downes says. The paper examines how the “creepy factor” permeates privacy debates rather than crisp thinking and clear-headed examination.

It’s not that location tracking doesn’t generate legitimate privacy concerns. It does. People don’t know how location information is collected and used. They don’t always know how to stop its collection. And the future consequence of location information collected today is unclear. But the capacity of private actors to harm individuals with location data is limited. Their incentive to do so is even smaller. And avoiding location tracking is simply done (at significant costs to convenience).

As Downes’ piece illustrates, we’ve seen this kind of debate before, and we’ll see it again: A particular innovation spurs privacy concerns and a backlash (whipped by legislators and regulators). A negotiation between consumers and industry, facilitated by the news media, advocates, and a variety of other actors, produces the way forward. As often as not, the way forward is a partial or complete embrace of the technology and its benefits. Plenty of times, the threat never materializes ( see pervasive RFID).

Downes explores the legal explanation for what happens when consumers adopt new technologies that use personal information to produce custom content and services—this question of “rights over … digital footprints.” He finds that licensing is the best explanation for what is happening. When consumers use the many online services available to them, they license data that they might otherwise control.

The legal framework Downes puts forward sets the stage for iterative, contract-based development of rules for how data may be used in the information economy. It cuts against top-down dictates like Franken’s proposal to regulate future technologies today, knowing so little of how technology or society will develop.

Ultimately, no legislature can resolve the deep and conflicted cultural issues playing out in the privacy debate. Downes characterizes that debate as revealed tension between Americans’ Davey Crockett side—the privacy-protective frontiersmen—and our collective Puritanism. We are participants in and parts of a very watchful society.

It’s worth a read, Larry Downes’s “A Rational Response to the Privacy ‘Crisis’.”

Someone should consider making a movie about wasteful state-based film industy subsidies. It has become quite a cronyist fiasco in a very short period of time.

Some background: State and local tax incentives for movie production have expanded rapidly over the past decade. These inducements include tax credits, sales tax exemptions, cash rebates, direct grants, and tax or fee reductions for lodging or locational shooting. In 2002, only five states offered such inducements for movie production. By the end of 2009, forty-five states had some sort of incentives in place to lure film producers.

In 2010, the film industry received an estimated $1.5 billion in financial commitments from these programs. Unsurprisingly, these incentives have proven very popular with movie studios. Of the nine motion pictures that were nominated for Best Picture at the Academy Awards in 2012, five had received taxpayer-funded rebates, tax credits, and subsidies by state governments. “The Help” received a Mississippi spending rebate of $3,547,780 and “The Tree of Life” received $434,253 from Texas. In February 2012, Best Picture-nominee “Moneyball” received as much as $5.8 million from the state of California. It had grossed over $75 million at the box office. More recently, the biopic “Lincoln” received roughly $3.5 million in tax incentives from the Virginia Film Office.

Many state and local governments offer these inducements in the hope of attracting new jobs and investment; other simply seek to bill themselves as “the new Hollywood.” As William Luther of the Tax Foundation notes, “From politicians’ point of view, bringing Hollywood to town is the best of all possible photo opportunities—not just a ribbon-cutting to announce new job creation but a ribbon-cutting with a movie or TV star.” But it seems as if the glamor and prestige associated with films and celebrities have trumped sound economics since there is no evidence these tax incentives help state or local economies.

“Based on fanciful estimates of economic activity and tax revenue, states are investing in movie production projects with small returns and taking unnecessary risks with taxpayer dollars,” noted a 2010 Tax Foundation study. “In return, they attract mostly temporary jobs that are often transplanted from other states.” Studies of specific state incentive programs confirm this finding, almost universally finding miniscule revenue gains for every dollar of film subsidies offered. The adjoining table, derived from a meta-survey of film incentives studies by the Center on Budget & Policy Priorities, illustrates how much revenue was lost per net job created by film tax credits as well as how little revenue each program generated for every dollar of state revenues awarded.

The only two studies that have revealed positive results for such film incentive programs were both conducted by Ernst and Young on behalf of the New York and New Mexico film offices. All others have shown consistent negative returns. (If you exclude those two Ernst and Young studies that were done for the film offices, the average revenue gained across those other programs is just 16 cents for every dollar of subsidy granted to the film industry. Stated differently, that’s an 84% net loss for these programs. Truly astonishing numbers.)

Recently, some states have begun abandoning or limiting film incentive programs or at least taking a hard look at their effectiveness. Iowa, for example, suspended its film program in 2009 after an investigation revealed a scandal involving much waste and abuse. Ten criminal cases were brought and seven people were eventually convicted. Michigan Governor Rick Snyder has also started reining in its film program as evidence has mounted that it has failed to create local jobs and has cost the state a great deal of tax revenue. Check out yesterday’s excellent New York Times article by Louise Story for all the gory details.

In sum, film tax credit cronyism puts taxpayers at risk without any corresponding benefits to them or the state.  Glamor-seeking and state pride seem to be the primary motivational factors driving state legislators to engage in such economically illogical behavior. It’s like “smokestack-chasing” for the Information Age, except in this case you don’t even have a factory left in town after your economic development efforts go bust. This cronyist activity benefits no one other than film studios. States should end their film incentive programs immediately.

Additional Reading:

• William Luther, Movie Production Incentives: Blockbuster Support for Lackluster Policy, Tax Foundation, Special Report, no. 173 (January 2010), at 7, http://taxfoundation.org/sites/taxfoundation.org/files/docs/sr173.pdf
• Robert Tannenwald, State Film Subsidies: Not Much Bang For Too Many Bucks,  Center on Budget & Policy Priorities (Dec. 9, 2010), http://www.cbpp.org/cms/index.cfm?fa=view&id=3326
• Joseph Henchman, More States Abandon Film Tax Incentives as Programs’ Ineffectiveness Becomes More Apparent, Tax Foundation Fiscal Fact, no. 272 (June 2, 2011), http://taxfoundation.org/article/more-states-abandon-film-tax-incentives-programs-ineffectiveness-becomes-more-apparent.
• Louise Story, Michigan Town Woos Hollywood, but Ends Up With a Bit Part, New York Times (December 4, 2012), http://www.nytimes.com/2012/12/04/us/when-hollywood-comes-to-town.html?_r=0.
• Will Wilson, Oscar Night Secret: Tax Breaks for Films Go Undisclosed in Many States, Stateline, Feb. 22, 2012,  http://www.pewstates.org/projects/stateline/headlines/oscar-night-secret-tax-breaks-for-films-go-undisclosed-in-many-states-85899375403
• Carten Cordell & Kathryn Watson, How Steven Spielberg’s Lincoln Benefited from Crony Capitalism, Reason, Nov. 15, 2012, http://reason.com/archives/2012/11/15/how-steven-spielbergs-lincoln-benefited.

In a New York Times op-ed this weekend entitled “You Can’t Say That on the Internet,” Evgeny Morozov, author of The Net Delusion, worries that Silicon Valley is imposing a “deeply conservative” “new prudishness” on modern society. The cause, he says, are “dour, one-dimensional algorithms, the mathematical constructs that automatically determine the limits of what is culturally acceptable.” He proposes that some form of external algorithmic auditing be undertaken to counter this supposed problem. Here’s how he puts it in the conclusion of his essay:

Quaint prudishness, excessive enforcement of copyright, unneeded damage to our reputations: algorithmic gatekeeping is exacting a high toll on our public life. Instead of treating algorithms as a natural, objective reflection of reality, we must take them apart and closely examine each line of code. Can we do it without hurting Silicon Valley’s business model? The world of finance, facing a similar problem, offers a clue. After several disasters caused by algorithmic trading earlier this year, authorities in Hong Kong and Australia drafted proposals to establish regular independent audits of the design, development and modifications of computer systems used in such trades. Why couldn’t auditors do the same to Google? Silicon Valley wouldn’t have to disclose its proprietary algorithms, only share them with the auditors. A drastic measure? Perhaps. But it’s one that is proportional to the growing clout technology companies have in reshaping not only our economy but also our culture.

It should be noted that in a Slate essay this past January, Morozov had also proposed that steps be taken to root out lies, deceptions, and conspiracy theories on the Internet.  Morozov was particularly worried about “denialists of global warming or benefits of vaccination,” but he also wondered how we might deal with 9/11 conspiracy theorists, the anti-Darwinian intelligent design movement, and those that refuse to accept the link between HIV and AIDS.

To deal with that supposed problem, he recommended that Google “come up with a database of disputed claims” or “exercise a heavier curatorial control in presenting search results,” to weed out such things. He suggested that the other option “is to nudge search engines to take more responsibility for their index and exercise a heavier curatorial control in presenting search results for issues” that someone (he never says who) determines to be conspiratorial or anti-scientific in nature.

Taken together, these essays can be viewed as a preliminary sketch of what could become a comprehensive information control apparatus instituted at the code layer of the Internet. Morozov absolutely refuses to be nailed down on the details of that system, however. In a response to his earlier Slate essay, I argued that Morozov seemed to be advocating some sort of Ministry of Truth for online search, although he came up short on the details of who or what should play that role. But in both that piece and his New York Times essay this weekend, he implies that greater oversight and accountability are necessary.  “Is it time for some kind of a quality control system [for the Internet]?” he asked in his Slate oped. Perhaps it would be the algorithmic auditors he suggests in his new essay. But who, exactly, are those auditors? What is the scope of their powers?

When I (and others) made inquiries via Twitter requesting greater elaboration on these questions, Morozov summarily dismissed any conversation on the point. Worse yet, he engaged in what is becoming a regular Morozov debating tactic on Twitter: nasty, sarcastic, dismissive responses that call into question the intellectual credentials of anyone who even dares to ask him a question about his proposals.  Unless you happen to be Bruno Latour — the obtuse French sociologist and media theorist who Morozov showers with boundless, adorning praise — you can usually count on Morozov to dismiss you and your questions or concerns in a fairly peremptory fashion.

I’m perplexed by what leads Morozov to behave so badly. When I first met him a couple of years ago, it was at a Georgetown University event he invited me to speak at. He seemed like an agreeable, even charming, fellow in person. But on Twitter, Morozov bears his fangs at every juncture and spits out venomous missives and retorts that I would call sophomoric except that it would be an insult to sophomores everywhere. Morozov even accuses me of “trolling” him whenever I ask him questions on Twitter, even though I am doing nothing more that posing the same sort of hard questions to him that he regularly poses to others (albeit in a much more snarky fashion).  He always seems eager to dish it out, but then throws a Twitter temper tantrum whenever the roles are reversed and the tough questions come his way. Perhaps Morozov is miffed by some of what I had to say in my mixed review of his first book, The Net Delusion, or my Forbes column that raised questions about his earlier proposal for an Internet “quality control” regime.  But I invite others to closely read the tone of those two essays and tell me whether I said anything to warrant Morozov’s wrath. (In fact, I actually said some nice things about his book in that review and later named it the most important information technology policy book of the year.)

Regardless of what motivates his behavior, I do not think it is unreasonable to ask for more substantive responses from Morozov when he is making grand pronouncements and recommendations about how online culture and commerce should be governed. The best I could get him to say on Twitter is that is that he only had 1,200 words to play with in his latest Times oped and that more details about his proposal would be forthcoming. Well, in the spirit of getting that conversation going, allow me to outline a few questions:

1)      What is the specific harm here that needs to be addressed?

• Do you have evidence of systematic algorithmic manipulation or abuse by Google, Apple, or anyone else, for that matter? Or is this all just about a handful of anecdotes that seemed to be corrected fairly quickly?

2)      What standard or metric should we use to determine the extent of this problem, to the extent we determine it is a problem at all?

• To the extent autocomplete results are what troubles you, can you explain how individuals or entities are “harmed” by those results?
• If this is about reputation, what is your theory of reputational harm and when it is legally actionable?
• If this is about informational quality or “truth,” can you explain what would constitute success?
• Can you appreciate the concerns / values on the other side of this that might motivate some degree of algorithmic tailoring? For example, some digital intermediaries may seek to curb the use of a certain amount of vulgarity, hate speech, or other offensive content on their sites since they are broad-based platforms with diverse audiences. (That’s why most search providers default to “moderate” filtering for image searches, for example.) While I think we both favor maximizing free speech online, do you accept that some of this private speech and content balancing is entirely rational and has, to some extent, always gone on? Also, aren’t there plenty of other ways to find the content you’re looking for besides just Google, which you seem preoccupied with?

3)      What is the proposed remedy and what are its potential costs and unintended consequences?

• Can you explain the mechanism of control that you would like to see put in place to remedy this supposed problem? Would it be a formal regulatory regime?
• Have you considered the costs and /or potentially unintended consequences associated with an algorithmic auditing regime if it takes on a regulatory character?
• For example, if you are familiar with how long many regulatory proceedings can take to run their course, do you not fear the consequences of interminable delays and political gaming?
• How often should the “auditing” you propose take place? Would it be a regular affair, or would it be driven by complaints?

4)      Is this regime national in scope? Global? How will it be coordinated /administered?

• In the United States, presumably the Federal Communications Commission or Federal Trade Commission would be granted new authority to carry out algorithmic audits, or would a new entity need to be created?
• Is additional regulatory oversight necessary and, if so, how is this coordinated by nationally and globally?

5)      Are there freedom of speech / censorship considerations that flow from (3) and (4)?

• At least in the United States, algorithmic audits that had the force of law behind them could raise serious freedom of speech concerns. (See Yoo’s paper on “architectural censorship” and the recent work of Volokh & Grimmelmann on search regulation) and long-settled First Amendment law (see, e.g., Tornillo) ensures that editorial discretion is housed in private hands. How would you propose we get around these legal obstacles?

6)      Are there less-restrictive alternatives to administrative regulation?

• Might we be able to devise various alternative dispute resolution techniques to flag problems and deal with them in a non-regulatory / non-litigious fashion?
• Could voluntary industry best practices and/or codes of conduct be developed to assist these efforts?
• Could an entity like the Broadband Internet Technical Advisory Group (BITAG) help sort out “neutrality” claims in this context, as they do in the broadband context?
• Might it be the case that social norms and pressure can keep this problem in check? The very act of shining light on silly algorithmic screw-ups — much as you have in your recent opeds — has a way of keeping this problem in check.

I hope that Morozov finds these questions to be reasonable. My skepticism of most Internet regulation is no secret, so I suppose that Morozov or others might attempt to dismiss some of these questions as the paranoid delusions of a wild-eyed libertarian. But I suspect that I’m not the only one who feels uneasy with Morozov’s proposals since they could open the door to regulators across the globe to engage in “algorithmic auditing” on the flimsy assumption that some great harm exists from a few silly autocomplete suggestions or a couple conspiratorial websites. We deserve answers to questions like these before we start calling in the Code Cops to assume greater control over online speech.

I’m pretty rough on all the Internet and info-tech policy books that I review. There are two reasons for that. First, the vast majority of tech policy books being written today should never have been books in the first place. Most of them would have worked just fine as long-form (magazine-length) essays. Too many authors stretch a promising thesis into a long-winded, highly repetitive narrative just to say they’ve written an entire book about a subject. Second, many info-tech policy books are poorly written or poorly argued. I’m not going to name names, but I am frequently unimpressed by the quality of many books being published today about digital technology and online policy issues.

The books of Harvard University cyberlaw scholars John Palfrey and Urs Gasser offer a welcome break from this mold. Their recent books, Born Digital: Understanding the First Generation of Digital Natives, and Interop: The Promise and Perils of Highly Interconnected Systems, are engaging and extremely well-written books that deserve to be books. There’s no wasted space or mindless filler. It’s all substantive and it’s all interesting. I encourage aspiring tech policy authors to examine their works for a model of how a book should be done.

In a 2008 review, I heaped praise on Born Digital and declared that this “fine early history of this generation serves as a starting point for any conversation about how to mentor the children of the Web.” I still recommend highly to others today. I’m going to be a bit more critical of their new book, Interop, but I assure you that it is a text you absolutely must have on your shelf if you follow digital policy debates. It’s a supremely balanced treatment of a complicated and sometimes quite contentious set of information policy issues.

In the end, however, I am concerned about the open-ended nature of the standard that Palfrey and Gasser develop to determine when government should intervene to manage or mandate interoperability between or among information systems. I’ll push back against their amorphous theory of “optimal interoperability” and offer an alternative framework that suggests patience, humility, and openness to ongoing marketplace experimentation as the primary public policy virtues that lawmakers should instead embrace.

Interop is Important, but Often Difficult & Filled with Trade-Offs

Palfrey and Gasser begin by noting that “there is no single, agreed-upon definition of interoperability” and that “there are even many views about what interop is and how it should be achieved” (p. 5). They set out to change that by developing “a normative theory identifying what we want out of all this interconnectivity” that the information age has brought us (p. 3).

Generally speaking, Palfrey and Gasser believe increased interoperability — especially among information networks and systems — is a good thing because it “provides consumers greater choice and autonomy” (p. 57), “is generally good for competition and innovation” (p. 90), and “can lead to systemic efficiencies” (p. 129).

But they wisely acknowledge that there are trade-offs, too, noting that “this growing level of interconnectedness comes at an increasingly high price” (p. 2). Whether we are talking about privacy, security, consumer choice, the state of competition, or anything else, Palfrey and Gasser argue that “the problems of too much interconnectivity present enormous challenges both for organizations and for society at large” (p. 2). Their chapter and privacy and security offers many examples, but one need only look around at their own digital existence to realize the truth of this paradox. The more interconnected our information systems become, and the more intertwined our social and economic lives become with those systems, the greater the possibility of spam, viruses, data breaches, and various types of privacy or reputational problems. Interoperability giveth and it taketh away.

When Does “the Public Interest” Demand Interoperability Regulation?

So, how do we know when increased interoperability is good for us or society? How do we strike a reasonable balance? And, most controversially, when should government intervene to tip the balance in one direction or another?

Palfrey and Gasser return to these questions repeatedly throughout the book but admit that their answers will be dissatisfying since “there is no single form or optimal amount of interoperability that will suit every circumstance” (p. 76). Thus, “most of the specifics of how to bring interop about [must] be determined on a case-by-case basis (p. 17). They elaborate:

That can feel unsatisfying. But it is an essential truth: the most interesting interop problems relate to society’s most complex and most fundamental systems. Their answers are never simple to come by, nor are they easy to implement. This characteristic of interop theory is a feature, not a bug. … The price to be paid for striving for a universal principle at the level of theory is that such a theory is full of nuances when it comes to application and practice (p. 17-18).

Fair enough. Yet, Palfrey and Gasser also make it clear they want government(s) to play an active role in ensuring optimal interoperability. They say they favor “blended approaches that draw upon the comparative advantages of the private and public sector” (p. 161), but they argue that government should feel free to tip or nudge interoperability determinations in superior directions. “If deployed with skill,” they argue, “the law can play a central role in ensuring that we get as close as possible to optimal levels of interoperability in complex systems” (p. 88).

That phrase — “optimal level of interoperability” — pops up repeatedly throughout the book. So, too, does the phrase “the public interest.” Palfrey and Gasser argue that governments must look out for “the public interest” and “optimal interoperability” since “market forces do not automatically lead to appropriate standards or to the adoption of the best available technology” (p. 167). Here they introduce two additional amorphous values that complicate the debate: “appropriate standards” and “best available technology.”

The fundamental problem this “public interest” approach to interoperability regulation is that it is no better than the “I-know-it-when-I-see-it” standard we sometimes at work in the realm of speech regulation. It’s an empty vessel, and if it is the lodestar by which policymakers make determinations about the optimal level of interoperability, then it leaves markets, innovators, and consumers subject to the arbitrary whims of what a handful of politicians or regulators think constitutes “optimal interoperability,” “appropriate standards,” and “best available technology.”

On the Limits of Knowledge

Palfrey and Gasser’s framework feels more than just “unsatisfying” in this regard; it feels downright insufficient. That’s because it is missing a major variable: the extent to which state actors are able to adequately define those terms or accurately forecast the future needs of markets or citizen-consumers.

Surprisingly, Palfrey and Gasser don’t really spend much time discussing the specific remedies the state might impose to achieve optimal interoperability. I would have liked to have seen them develop a matrix of interop options and then outline the strengths and weaknesses of each. But even absent a more detailed discussion of possible regulatory remedies, I would have settled for more concrete answers to the following questions: Why are we to assume that regulators possess the requisite knowledge needed to know when it makes sense to foreclose ongoing marketplace experimentation? And why should we trust that, by substituting their own will for that of countless other actors in the information technology marketplace, we will be left better off?

The closest Palfrey and Gasser get to defining a firm standard for when and why such state intervention is warranted comes on page 173 when they are discussing the need for the state to establish sound reasons for intervention. They argue:

The objective should not be interoperability per se but, rather, one or more public policy goal to which interoperability can lead. The goals that usually make sense are innovation and competition, but other objectives might include consumer choice, ease of use of a technology or system, diversity, and so forth (p. 173).

This is a bit better, but it still doesn’t fully grapple with the cost side of the cost-benefit calculus for intervention. Palfrey and Gasser are willing to at least acknowledge some of those problems when they remark that “the state is rarely in a position to call a winner among competing technologies” (p. 174). Moreover,

Lawmakers need to keep in view the limits of their own effectiveness when it comes to accomplishing optimal levels of interoperability. Case studies of government intervention, especially where complex information technologies are involved, show that states tend to be ill suited to determine on their own what specific technology will be the best option for the future (p. 175)

Quite right! Yet, that insight does not seem to influence their calls elsewhere in the book for regulatory activism. That’s a shame since the admonition about policymakers recognizing the “limits of their own effectiveness” should be able to help us devise some limiting principles regarding the state’s role.

Toward an Alternative Theory: Experimental, Evolutionary Interoperability

Allow me to offer a different theory of optimal interoperability that flows from these previous insights. It’s based on a more dynamic view of markets and the central importance of experimentation in the face of uncertainty. Let me just go ahead and articulate the core principles of what I will refer to as  “experimental, evolutionary interoperability theory.” Then I’ll explain it in more detail

• Experimental, evolutionary interoperability : The theory that ongoing marketplace experimentation with technical standards, modes of information production and dissemination, and interoperable information systems, is almost always preferable to the artificial foreclosure of this dynamic process through state action. The former allows for better learning and coping mechanisms to develop while also incentivizing the spontaneous, natural evolution of the market and market responses. The latter (regulatory foreclosure of experimentation) limits that potential.

Palfrey and Gasser would label this a “laissez-faire” theory of interoperability and oppose it since they believe “a pure laissez-faire approach to interop rarely works out well” (p. 160). But they are wrong, at least to the extent they include the sweeping modifier “rarely” to describe this model’s effectiveness. In reality, the vast majority of interoperability that occurs into today’s information economy happens in a completely natural, evolutionary fashion without any significant state intervention whatsoever. In countless small and big ways alike, interconnection and interoperability happens every day throughout society. Yes, it is true that interoperability often happens against the backdrop of a legal system that allows court action to enforce certain rights or address perceived harms, but I would not classify that as a significant direct state intervention to tip or nudge interconnection decisions in one direction or another. And when interoperability doesn’t happen naturally, there are often good reasons it doesn’t and, even if there aren’t, non-interop spawns beneficial marketplace reactions and innovations.

Experimental, evolutionary interoperability theory flows out of Schumpeterian competition theory and the related field of evolutionary economics, but it is also heavily influenced by public choice theory (which stresses the limitations of romanticized theories of politics, planning, and “public interest” regulation). This alternative theory begins by accepting the simple fact that, as Austrian economist F.A. Hayek taught us, “progress by its very nature cannot be planned.” The wiser man, Hayek noted, “is very much aware that we do not know all the answers and that he is not sure that the answers he has are certainly the right ones or even that we can find all the answers.”

Ongoing experimentation with varying business models and modalities of social and economic production allows us to see what consumer choice and trial and error experimentation yields naturally over time. Ongoing experiments with flexible, voluntary interop standards and negotiations also allows us to determine which technological standards seem to benefit consumers in the short-term while also encouraging innovators to leap-frog existing standards and platforms when they become locked-in for too long or seem sub-optimal.

In the short-term, it is entirely possible that such voluntary, evolutionary interop experiments “fail” in various ways. That is often a good thing. Failures are how individuals and a society learn to cope with change and devise systems and solutions to accommodate technological change. As Samuel Beckett once counseled: “Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.” Progress depends upon an embrace of this uncertainty and acceptance of a world of constant upheaval if we are to learn how to cope, adapt, and move forward.

In this model, technological innovation often springs from the quest for the prize of market power.  Palfrey and Gasser generally reject this Schumpeterian vision of dynamic competition, but they at least do a nice job of describing it:

firms may have a stronger incentive to be innovative when low levels of interoperability promise higher or even monopoly profits. This sort of competition… creates incentives for firms to come up with entirely new generations of technologies or business methods that are proprietary (p. 121).

They reject this approach based on (1) the mistaken notion that the quest of the prize of market power ends in the attainment and preservation of that market power; and (2) the belief that policymakers possess the ability to set us on a better course through wise interventions.

In a moment, I’ll prove why that is misguided by examining a few real-world cases studies. For now, however, let’s return to Palfrey & Gasser’s central operating principle and contrast it with the vision I’ve articulated here. Recall that they argue “it is important to maintain and facilitate diversity in the marketplace. We simply want systems to work together when we want them to and to not work together when we do not.” Again, there is no standard here if one is suggesting this as the principle by which to determine when state intervention is desirable . But if one is looking at that aspirational statement as a description of the natural order of things — namely, that we do indeed “want systems to work together when we want them to and to not work together when we do not” — then that is a perfectly sound principle for understanding why state intervention should be disfavored in all but the most extreme circumstances. To reiterate: We should not allow the state to foreclose interoperability experiments because (a) those experiments have value in and of themselves, and (b) state action is likely to have myriad unintended consequences and unforeseen costs that are not easily remedied or reversed.

There are moments in the book when Palfrey and Gasser appear somewhat sympathetic to the sort of alternative “evolutionary interop” theory I have articulated here. For example, they note that:

The web is a great equalizer for technology firms. As consumers, we have come to expect that everything will work together without incident or interruption. We think it bizarre when something in the digitally networked world does not mesh with something else, perceiving whatever it is to be broken, in need of repair. This high degree of expectation is a powerful driver of interoperability. Market players are increasingly responding to this consumer demand and making these invisible links work for their customers without any government intervention” (p. 28) [italics added]

You won’t be surprised to hear that I agree wholeheartedly! Moreover, what it really proves is that ongoing marketplace experimentation and the evolution of norms and standards generally solve interoperability problems as they develop. That doesn’t mean markets are perfectly competitive or always produce perfect interoperability. But, again, why should we believe state intervention will do a better job? And isn’t it possible that intervention could negatively counter those natural instincts that Palfrey and Gasser describe about how consumers and market actors interact to make those “invisible links” work out as nicely as they do today?

Interop, Competition & Innovation: Some Cases Studies of Evolutionary Interoperability in Action

To better explain experimental, evolutionary interop theory and how it plays out in the real-world, let’s examine the complex relationship between interoperability, competition, and innovation in the information economy through the prism of three case studies: AOL and instant messaging, video game consoles, and smartphones.

AOL

America Online’s (AOL) case study is probably the most profound example of Schumpeterian creative destruction rapidly eroding the market power of a once “dominant” digital giant. Not long ago, AOL was cast as the great villain of online openness and interoperability. In fact, when Lawrence Lessig penned his acclaimed book Code in the late 1990s, AOL was supposedly set to become the corporate enslaver of cyberspace.

For a time, it was easy to see why Lessig and others were worried. Twenty five million subscribers were willing to pay $20 per month to get a guided tour of AOL’s walled garden version of the Internet. Then AOL and media titan Time Warner announced a historic mega-merger that had some predicting the rise of “new totalitarianisms” and corporate “Big Brother.”

Fearing the worst, several conditions were placed on approval of the merger by both the Federal Trade Commission and the Federal Communication Commission. These included “open access” provisions that forced Time Warner to offer the competing ISP service from the second largest ISP at that time (Earthlink) before it made AOL’s service available across its largest cable divisions.  Another provision imposed by the FCC mandated interoperability of instant messaging systems based on the fear that AOL was poised to monopolize that emerging technology.

Palfrey and Gasser suggest this was a necessary and effective intervention. “The AOL IM case is another instance in which the role of government was key in establishing a more interoperable ecosystem” and they credit the FCC’s action with cutting AOL’s share of the IM (p. 68-9). That’s a huge stretch. The reality is that markets and technologies evolved around AOL’s walled garden and decimated whatever advantage the firm had in either the web portal business or instant messaging market.

First, despite all the hand-wringing and regulatory worry, AOL’s merger with Time Warner quickly went off the rails and AOL’s online “dominance” quickly evaporated. Looking back at the deal with TW, Fortune magazine senior editor Allan Sloan called it the “turkey of the decade” since it cost shareholders hundreds of billions. Second, AOL’s attempt to construct the largest walled garden ever also failed miserably as organic search and social networking flourished. Consumers showed they demanded more than the hand-held tour of cyberspace.

Finally, the hysteria about AOL’s threat to monopolize instant messaging and deny interoperability proved particularly unwarranted and also serves as a cautionary tale for those who argue regulation is needed to solve interoperability problems. At the time, well-heeled major competitors like Yahoo and Microsoft already had significant competing IM platforms, and others were rapidly developing. Interoperability among those systems was also spontaneously developing as consumers demanded greater flexibility among and within their communications systems. The development of Trillian, which allowed IM users to see all their various IM feeds at once, was an early precursor of what was to come. Today, anyone can download a free chat client like Digsby or Adium to manage multiple IM and email services from Yahoo!, Google, Facebook and just about anyone else, all within a single interface, essentially making it irrelevant which chat service friends use.

In a truly Schumpetrian sense, innovators came in and disrupted AOL’s plans to dominate instant messaging with innovative offerings that few critics or regulators would have believed possible just a decade ago. Progress happened, and nobody planned it from above. The FCC’s IM interoperability provision was quietly sunset less than three years after its inception since the evolution of technology and markets had rapidly eliminated the perceived problem. That mandate, as it turned out, wasn’t needed at all, and all it probably accomplished during its short life span was to hobble AOL’s ability to find a way to remain relevant in the increasingly competitive Web. 2.0 world.

Video game consoles

At first blush, the video game console wars might seem like the ideal case study for those who favor greater interoperability regulation. After all, in a static sense, why do we really need several competing video game platforms that prevent consumers from playing their games on more than one system? The lack of console interoperability also drives up development costs for game makers. Many of those developers would prefer to just code games for a single, universal gaming platform. Therefore, isn’t this the perfect excuse for state intervention to ensure “optimal interoperability”?

To the contrary, this is another example of why government should generally avoid intervening to try to achieve some sort of artificial optimal interoperability. This market has undergone continuous, turbulent change and witnessed remarkable pro-consumer innovation despite a lack of interoperability.

The video game console wars have raged since the late 1970s. The first generation of consoles was dominated Atari (2600), Mattel (Intellivision), and Coleco (ColecoVision). By the mid-1980s, the industry saw a new cast of characters displace the old players. Nintendo (NES), and Sega (Genesis) took the lead. Atari attempted a rebirth with its “Jaguar” console but failed miserably.

The demise of Atari’s 2600 console was particularly notable. When it debuted in 1977, the system revolutionized the home game market on its way to selling more than 30 million units.  For a few years, it utterly dominated the console market and the company “rushed out games, assuming that its customers would play whatever it released,” notes New York Times reporters Sam Grobart and Ian Austen. But demand rapidly dried up as other consoles and personal computers took the lead with more powerful, flexible platforms and games. In the end, “millions of unsold games and consoles were buried in a New Mexico landfill in 1983. Warner Communications, which bought Atari in 1976 for $28 million, sold it in 1984 for no cash.”

The next generation of machines was dominated by Nintendo and Sega. But by the turn of the century, more new faces appeared and disrupted the second generation of market leaders. Sony (PlayStation) and Microsoft (Xbox) introduced powerful new consoles that continue to evolve to this day. Both consoles have already cycled through three iterations, each increasingly powerful and more functional. Sega dropped out of the console business and refocused on game development. Nintendo managed to survive with its innovative “Wii” system, but has fallen from its perch as king of the console market. Many also forget Apple’s failed run at the console business with its “Pippin” system in the late 1990s. Steve Jobs killed off the console when he returned to once again lead Apple in 1997. Ironically, just a decade later, with the rise of the iPhone and the Apple App Store, the company would emerge as a major player in the gaming market as smartphone gaming exploded.

Of course, PC gaming existed across these generations and handheld gaming devices and now smartphones are also providing competition to traditional consoles. Arcade games also existed both then and now. Thus, the video game market has always been broader than just home gaming consoles.

Nonetheless, at no time during the turbulent history of this sector have major consoles interoperated. The result has been a constant effort by major console developers to leap-frog the competition with increasingly innovative and powerful consoles and peripherals. Would Microsoft have developed the Kinect motion-sensing device if Nintendo had not previously developed their game-changing Wii motion controllers? It’s impossible to know but it would seem that non-interoperability had something to do with that beneficial development. Microsoft needed a game-changing peripheral of its own to meet the Nintendo challenge since Nintendo was not about to share its innovations with the competition. Meanwhile, Sony has developed its own motion-based “Move” system to compete Microsoft and Nintendo.

This is a highly dynamic marketplace at work. Could policymakers have determined that 3 major non-interoperable home consoles would have produced so much innovation? Would they have judged that to be too much or too little competition?  Would they have been able to foresee or help bring about the disruptive competition from portable gaming devices or smartphones? What sort of interop regulation would have made that happen?

As Palfrey and Gasser suggest in their book, there really “is no single form or optimal amount of interoperability that will suit every circumstance.” The video game case study seems to prove that. Yet, their framework leaves the door open a bit wider for state meddling to determine “optimal interop.” I have little faith that state planners could have given us a more innovative video game marketplace through interop nudging. And I also worry that if the door had been open for regulators at the FCC or elsewhere to influence interoperability decisions, it might have also opened to the door to content regulation since many lawmakers have long had an appetite for video game censorship.

Smartphones

The mobile phone handset and operating system marketplace has undergone continuous change over the past 15 years and is still evolving rapidly. There are some interoperable elements, such as the ability to make connecting calls and send texts and IMs. But other parts of the smartphone ecosystem are not interoperable, such as underlying operating systems or apps and app stores.

In the midst of this mixed system of interoperable and non-interoperable elements, innovation and cut-throat competition have flourished.

When cellular telephone service first started taking off in the mid-1990s, handsets and mobile operating systems were essentially one in the same, and Nokia and Motorola dominated the sector with fairly rudimentary devices. The era of personal digital assistants (PDAs) dawned during this period, but mostly saw a series of overhyped devices, including Apple’s “Newton,” that failed to catch on. In the early 2000s, however, a host of new players and devices entered the market, many of which are still on the scene today, including LG, Sony, Samsung, Siemens, and HTC. Importantly, the sector began splitting into handsets versus operating systems (OS). Leading mobile OS makers have included: Microsoft, Palm, Symbian, BlackBerry (RIM), Apple, and Android (Google).

The sector continues to undergo rapid change and interoperability norms have evolved at the same time. Looking back, it’s hard to know whether increased interoperability would have helped or hurt the state of competition and innovation.

Consider Palm, Blackberry, and Microsoft which all limited interoperability with other systems in various ways. Palm smartphones were wildly popular for a brief time and brought many innovations to the marketplace, for example. Palm underwent many ownership and management changes, however, and rapidly faded from the scene.  After buying Palm in 2010, HP announced it would use its webOS platform in a variety of new products.  That effort failed, however, and HP instead announced it would transition webOS to an open source software development mode.

Similarly, RIM’s BlackBerry was thought to be the dominant smartphone device for a time, but it has recently been decimated. BlackBerry’s rollercoaster ride has left it “trying to avoid the hall of fallen giants” in the words of an early 2012 New York Times headline.  The company once commanded more than half of the American smartphone market but now has under 10 percent, and that number continues to fall.

Microsoft also had a huge lead in licensing its Windows Mobile OS to high-end smartphone handset makers until Apple and Android disrupted its business. It’s hard to believe now, but just a few years ago the idea of Apple or Google being serious contenders in the smartphone business was greeted with suspicion, even scorn by popular handset makers such as Nokia and Motorola. This serves as another classic example of those with a static snapshot mentality disregarding the potential for new entry and technological disruption. Just a few years later, Nokia’s profits and market share have plummeted and a struggling Motorola was purchased by Google. Meanwhile, again, Palm seems dead, BlackBerry is dying, and Microsoft is struggling to win back market share it has lost to Apple and Google in this arena.

It would seem logical to conclude that the ebbs and flows of interoperable and non-interoperable elements of the smartphone world have created a turbulent but vibrantly innovative sector. Has the lack of interoperable operating systems or apps and apps stores hurt smartphone consumers? It’s hard to see how. Mandating interoperability at either level could lead to an OS or app store monopoly, most likely for Apple if such a policy were pursued today.

While Apple has had great success and earned endless kudos for their slick, user-friendly innovations from consumers and tech wonks alike, some critics decry their proprietary business model and more “controlled” user experience. Apple tightly controls almost every level of production of its iPhone smartphone and iPad tablet. Interoperability with competing systems, standards, or technologies is limited in many ways. Is that bad? Some critics think so, suggesting that greater “openness” — presumably in the form of greater device or program interoperability — is needed. But so what? Consumers seem extremely happy with Apple devices. Moreover, well-heeled rivals like Google (Android) and Microsoft continue to innovate at a healthy clip and offer consumers a decidedly different user experience. As with video games consoles, non-interop has had some important dynamic effects and advantages for consumers. It’s hard to know what “optimal interoperability” would even look like in the modern smartphone marketplace and how it would be achieved, but it’s equally hard to believe that consumers would be significantly better off if regulators were trying to achieve it through top-down mandates on such a dynamic, fast-moving market.  [For more on this topic, see my 2011 book chapter, “The Case for Internet Optimism, Part 2 – Saving the Net From Its Supporters,” from the book, The Next Digital Decade.]

Case Study Summary & Analysis

These case studies suggest that defining “optimal interoperability” is a pipe dream. In some cases, consumers demanded a certain amount interoperability and they got it. But it seems equally obvious that they did not demand perfect interoperability in every case. Few consumers are tripping over their own feet in a mad rush to toss out their XBoxs or iPhones just because they are not perfectly interoperable. On the other hand, since the days of the old “walled garden” hell of AOL, CompuServe, Prodigy, and so on, it would seem that information technology markets are growing more “open” in other ways. You can’t completely lock-down a user’s online experience and expect to win their business over the long haul.

Palfrey and Gasser make that point quite nicely in the book:

Increasingly, though, businesses are seeing the merits of strategies based on openness. A growing number of businesses are pursuing models that incorporate interoperability as a core principle. More and more firms, especially in the information business, are shedding their proprietary approaches in favor of interoperability at multiple levels. The goal is not to be charitable to competitors or customers, of course, but to maximize returns over time by building an ecosystem with others that holds greater promise than the go-it-alone approach (p. 149).

Quite right, but let’s not pretend that any mass market information platforms or systems will ever be perfectly “open” or interoperable. There will always be some limitations on how such systems are used or shared. And that’s just fine once you embrace a more flexible theory of evolutionary interoperability.  Ongoing experiments will get us to a better place.

Conclusion: Let Interop Experiments Continue!

So, let me wrap up by restating my alternative theory of optimal interoperability as succinctly as possible: When in doubt, ongoing, bottom-up, dynamic experimentation will almost always yield better answers than arbitrary intervention and top-down planning. Again, that is not to say that all interoperability experiments will leave society better off in the short-term. Some interoperability experiments and resulting market norms or outcomes can create challenging dilemmas for individuals and institutions. There may be short-term spells of “market power,” for example, and some standards may get locked in longer than some of us think makes sense. If, however, we have faith in humans to solve problems with information and technology, then still more experimentation — not state intervention — is the answer. And that is especially true once you accept the fact that those seeking to intervene have very limited knowledge of all the relevant facts needed to even make wise decisions about the future course of technology markets or information systems.

Some will find my alternative theory of optimal interoperability no more satisfying than Palfrey and Gasser’s since they may find the experimental interop framework too inflexible when it comes to state action. Whereas the frustration with Palfrey and Gasser’s theory will likely flow from their failure to define a coherent standard for when intervention is warranted, my approach solves that problem by suggesting we should largely abandon the endeavor and instead let ongoing market experiments solve interop problems over time. For me, we would need to find ourselves in a veritable whole-world-is-about-to-go-to-hell sort of moment before I could go along with state intervention to tip the interop scales in one direction or another. And, generally speaking, this is exactly the sort of thing that antitrust laws are supposed to address after a clear showing of harm to consumer welfare. Stated differently, to the extent any state intervention to address interoperability can be justified, ex post antitrust remedies should almost always trump ex ante regulatory meddling.

This alternative vision of evolutionary, experimental interoperability will be rejected by those who believe the state has the ability to wisely intervene and nudge markets to achieve “optimal interoperability” through some sort of Goldilocks principle that can supposedly get it just right. For those of us who have doubts about the likelihood of such sagacious state action — especially for fast-paced information sectors — the benefits of ongoing marketplace experimentation far outweigh the costs of letting those experiments run their course.

Regardless, we should be thankful that John Palfrey and Urs Gasser have provided us with a book that so perfectly frames what should be a very interesting ongoing debate over these issues. I encourage everyone to pick up a copy of Interop so you can join us in this important discussion.

Additional Reading:

• the official book site
• buy the book on Amazon or Barnes & Noble
• Follow the authors on Twitter: @JPalfrey & @UGasser
• a video of their Harvard book launch follows:

In an provocative oped in today’s New York Times, Vint Cerf, one of the pioneers of the Net who now holds the position “chief Internet evangelist” at Google, makes the argument for why “Internet Access Is Not a Human Right.” He argues:

technology is an enabler of rights, not a right itself. There is a high bar for something to be considered a human right. Loosely put, it must be among the things we as humans need in order to lead healthy, meaningful lives, like freedom from torture or freedom of conscience. It is a mistake to place any particular technology in this exalted category, since over time we will end up valuing the wrong things. For example, at one time if you didn’t have a horse it was hard to make a living. But the important right in that case was the right to make a living, not the right to a horse. Today, if I were granted a right to have a horse, I’m not sure where I would put it. The best way to characterize human rights is to identify the outcomes that we are trying to ensure. These include critical freedoms like freedom of speech and freedom of access to information — and those are not necessarily bound to any particular technology at any particular time. Indeed, even the United Nations report, which was widely hailed as declaring Internet access a human right, acknowledged that the Internet was valuable as a means to an end, not as an end in itself.

You won’t be surprised to hear that I generally agree. But there are two other issues Cerf fails to address. First, who or what pays the bill for classifying the Internet or broadband as a birthright entitlement?  Second, what are the potential downsides for competition and innovation from such a move? As I noted in a recent essay here (“What Does It Mean to Declare Broadband a “Human Right,” and What Are the Costs?”):

We live in a world of trade-offs and there is no free lunch. One doesn’t just mandate broadband for all and then expect there won’t be any costs — both direct and indirect. The direct cost is the cost to taxpayers or ratepayers in form of higher taxes or bills. The indirect costs usually arrive in the form of diminished competition, limited innovation, lackluster options, and the various problems associated with the regulatory capture that will ensue.

The first objection is self-evident and needs little elaboration since we are today witnessing the breakdown of welfare state entitlement systems and policies across the globe as one country after another is bankrupted by them. But the second point needs to be unpacked a bit more.

As I noted in my earlier essay, the best universal service policy is marketplace competition. When we get the basic framework right — low taxes, property rights, contractual enforcement, anti-fraud standards, etc. — competition generally takes care of the rest. But competition often doesn’t develop — or is sometimes prohibited outright — in sectors or for networks that are declared “essential” facilities or technological entitlements.  That’s not because they are natural monopolies, rather, it’s because the policies that lawmakers and regulators put in place to ensure universal service ultimately have the counter-productive impact of retarding new entry.  Worse yet, the entitlement mentality and corresponding universal service mandates typically produce less fertile ground for innovative breakthroughs. For greater ellaboration on both points, see my old 1994 essay:  “Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly.”

So, while I appreciate and agree with Cerf’s humorous point that “Today, if I were granted a right to have a horse, I’m not sure where I would put it,” the more interesting question is this: If government would have decreed long ago that everyone had a right to a horse, would that have meant everyone actually got one? (Recall that despite a similar mandate for telephony and billions upon billions in spending / transfers, we never had more than 94% of the nation served with basic telephone service.) If everyone did actually get a horse via a hypothetical Horse Entitlement System, how efficient was that program and the resulting bureaucracy / regulatory apparatus? Who picked up the bill? Did it discourage entry by more efficient vendors? Did it discourage innovations that might have served the public better? Did the program outlive its usefulness and become a drag on innovation /productivity. Was the system gamed or captured? (I can only imagine the lobbying that would have ensued from the horse industry once trains, cars, and airplanes became a disruptive threat!)

These are the sort of questions rarely asked initially in discussions about proposals to convert technologies or networks into birthright entitlements. Eventually, however, they become inescapable problems that every entitlement system must grapple with.  When we discuss the wisdom of classifying the Internet or broadband as a birthright entitlement, we should require advocates to provide us with some answers to such questions. Kudos to Vint Cerf for helping us get that conversation going in a serious way.

The New York Times reports that, “Facebook is hoping to do something better and faster than any other technology start-up-turned-Internet superpower. Befriend Washington. Facebook has layered its executive, legal, policy and communications ranks with high-powered politicos from both parties, beefing up its firepower for future battles in Washington and beyond.”  The article goes on to cite a variety of recent hires by Facebook, its new DC office, and its increased political giving.

This isn’t at all surprising and, in one sense, it’s almost impossible to argue with the logic of Facebook deciding to beef up its lobbying presence inside the Beltway. In fact, later in the Times story we hear the same two traditional arguments trotted out for why Facebook must do so: (1) Because everyone’s doing it! and (2) You don’t want be Microsoft, do you?   But I’m not so sure whether “normalizing relations” with Washington is such a good idea for Facebook or other major tech companies, and I’m certainly not persuaded by the logic of those two common refrains regarding why every tech company must rush to Washington.

In an essay I penned for the Cato Institute last November entitled “The Sad State of Cyber-Politics,” I reiterated arguments made a decade earlier by two brilliant men: Cypress Semiconductor CEO T. J. Rodgers and the late great Milton Friedman. Rodgers penned a prescient manifesto for Cato in 2000 with the provocative title: “Why Silicon Valley Should Not Normalize Relations with Washington, D.C.” in which he argued that, “The political scene in Washington is antithetical to the core values that drive our success in the international marketplace and risks converting entrepreneurs into statist businessmen.” A year earlier, Friedman penned another Cato essay called “The Business Community’s Suicidal Impulse” in which he lamented the persistent propensity of companies to persecute one’s competitors using regulation or the threat thereof. What both men stressed was that coming to Washington has a tendency to change a company’s focus and disposition, and not for the better — if you believe in real capitalism, that is, and not the abominable crony capitalism fostered by Washington.

But few in the high-tech world have listened to this logic, especially when the whole rest of the world was falling all over themselves to open a Washington, DC office first in an effort to cover their butts from regulatory encroachments and then later to figure out how the wield the hammer of Big Government to their corporate advantage. I documented numerous examples of the latter in my Cato essay.

I’m not saying that the folks at Facebook are going to be looking to screw over their competitors right away. In fact, I can’t currently think of any examples of how they might.  The company is still firmly in that “cover your butt” period that is common when a hot new digital innovator first comes to DC.  And I certainly can’t blame them for wanting to push back against many misguided forms of Internet regulation, such as free speech controls or heavy-handed privacy regulation.  But I fear there will come a day when they fall in line with many other high-tech companies and trade associations and seek to turn the regulatory state to their advantage.  Only time will tell. And I certainly hope I am wrong.

Regardless, as the folks at Facebook and other high-tech firms ponder their future inside the Beltway, let me ask them to return to the two premises for “normalizing relations” that I cited above and explain why they are not exactly true:

Premise #1: Everyone’s doing it!  Most are, but not all. How active are Apple and Sony to name just two companies without a major DC presence?  Most days of the week, Steve Jobs seems to be giving DC a big middle finger. I’m the last guy in the world you’ll ever hear giving Apple much credit since I hate their products, but Jobs is about the closest thing you’ll find to an Ayn Rand character in Silicon Valley these days.  He seems to do exactly what he wants to build innovative products for consumers and, in the process, ignore all his critics, especially those in Washington. Of course, not everybody can be Steve Jobs in this regard, but I can’t help but wonder: Why don’t more of them try? What if high-tech entrepreneurs just told Washington to buzz off?

Premise #2: You don’t want be Microsoft, do you? The Times article says, “legal analysts say Facebook is hoping to avoid mistakes made by predecessors like Microsoft. And they say the company is becoming politically savvy earlier in its life than Google, whose connections were firmly established once Eric E. Schmidt, the chief executive, advised the Obama presidential campaign and the administration.”

I’ve never really bought into this argument. I think it’s pretty far-fetched to claim, as so many people in this field do, that if Microsoft would have just had a small army of lobbyists here on the ground back in the early 1990s that none of their antitrust problems would have popped up. And regarding Google coming to Washington in the hope of winning friends, well, how’s that working out for them?!  As I noted in my Cato essay:

Everybody — and I do mean everybody — wants Google dead, right now. Google currently serves as the Great Satan in this drama — taking over the role Microsoft filled a decade ago — as just about everyone views it with a combination of envy and enmity.

Indeed, no one could be happier about Facebook coming to town at this moment than Google!  They get to hand the “Great Satan” baton off to Facebook and wish them the best!  Of course, Google’s problems with Washington aren’t done by a long-shot, but I’m quite sure they’re relieved to see Facebook getting grilled more at hearings and events around town these days.

Anyway, in all seriousness, I’ll say the same thing to the fine folks in the Facebook DC office — several of whom I know well — that I’ve said to countless other tech companies here in the Beltway through the years: Stay true to the same principles that made your company so great to begin with.  It wasn’t Washington that built Facebook, or Google, or Microsoft, or any other high-tech innovators; it was entrepreneurial capitalism that did.  Free minds and free markets made the high-tech sector what it is today, not handouts and special favors from Washington. Stick to real capitalism; avoid the crony variety.

You have to read all the way to the end to get exactly what the New York Times is getting at in its Sunday editorial, “Netizens Gain Some Privacy.”

Congress should require all advertising and tracking companies to offer consumers the choice of whether they want to be followed online to receive tailored ads, and make that option easily chosen on every browser.

That means Congress—or the federal agency it punts to—would tell authors of Internet browsing software how they are allowed to do their jobs. Companies producing browser software that didn’t conform to federal standards would be violating the law.

In addition, any Web site that tailored ads to their users’ interests, or the networks that now generally provide that service, would be subject to federal regulation and enforcement that would of necessity involve investigation of the data they collect and what they do with it.

Along with existing browser capabilities (Tools > Options > Privacy tab > cookie settings), forthcoming amendments to browsers will give users more control over the information they share with the sites they visit. That exercise of control is the ultimate do-not-track. It’s far preferable to the New York Times‘ idea, which has the Web user issuing a request not to be tracked and wondering whether government regulators can produce obedience.

[I got enough push-back to a recent post arguing the existence of market nimbleness in the browser area that I’m unsure of the thesis I expressed there. The better explanation of what’s going on may be that regulatory pressure is moving browser authors and others to meet the peculiar demands of the pro-regulatory community. The reason they have waited to act until now is because they do not perceive consumers’ interests to be met by protections against tailored advertising. The question of what meets consumers’ interests won’t be answered if regulation supplants markets, of course.]

The nice folks at the New York Times “Room for Debate” feature asked me and a group of bright lights to discuss the Verizon-Google agreement on network neutrality regulation, as it stood at various points in the day.

Read the comments of Tim Wu, Lawrence Lessig, David Gelernter, Ed Felten, Jonathan Zittrain, and myself. Much of my comment owes credit to Tim Lee’s excellent paper “The Durable Internet.”

We’re all over the place, folks . . .

Update: Late addition: Gigi Sohn.

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Thus did Ronald Reagan capture the essence of big government. The two biggest challenges facing defenders of free markets in technology policy lie in Reagan’s second point:

• Telling the “Good News Story” about how “it” (human ingenuity—what the great economist Julian Simon called our “Ultimate Resource”) keeps “moving” (by inventing new hardware, software, services, etc.)
• Holding the line against efforts to extend the regulatory regimes of the past over new technologies, and chipping away at those regimes as best we can

So one might think that believers in limited government would celebrate a company like Google as a great American success story: A university research program launched by two smart kids (one of whom fled Communist oppression) that grew from a garage start-up into a global tech titan whose wide-ranging innovations are revolutionizing more and more of the economy. Surely free marketeers would rally to the defense of such a company when, say, the New York Times—that if-it-moves-regulate-it bastion—calls for bringing “into the regulatory fold,” right?

Unfortunately, all too many free marketeers seem willing to hang Google out to dry, or at least stay silent because they resent the pro-regulatory policy positions taken by the company or the political leanings of its employees and leadership. The company has hardly been a champion of digital capitalism in Washington, allying itself with a number tax/regulate/subsidize groups, pushing for net neutrality regulation, and using antitrust as a sword against its rivals (some of whom seem willing to return the favor). But the principles at stake are too important for free marketeers to gloat, as Adam Thierer argued in an op/ed for National Review Online earlier this week: Government vs. Google: Why Free Marketeers Should Rally Against “Search Neutrality.”

• First Amendment Protection of Search Algorithms as Editorial Discretion – by Berin Szoka
• Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction – by Berin Szoka & Adam Thierer
• The Day Real Internet Freedom Died – by Berin Szoka & Adam Thierer
• Odlyzko on Net Neutrality, Price Discrimination, PrivacyFail, Search & Cloud Neutrality – by Berin Szoka
• Google Voice & the Slippery Slope of Net Neutrality Regulation – by Adam Thierer
• Is the FCC Becoming the Federal Cloud Commission? – by Adam Thierer
• My Net Neutrality Debate with Public Knowledge – by Berin Szoka

As part of its excellent “Room for Debate” series, the New York Times has an interesting new online symposium up now asking, “Will Networks Go Wild, With No Decency Rules?”  It was in response to last week’s Second Circuit decision, which again slapped down an effort by the Federal Communications Commission to defend the agency’s indecency enforcement regime.  I was honored to be asked to contribute a short essay on the subject. Here are the other contributors and their essays.  Take the time to check them out:

• “The F.C.C.’s Policy Was a Mistake” – Michael K. Powell, a former chairman of the Federal Communications Commission
• “Where Is the Line?” – Christopher Rosen, television writer
• “Help Kids and Families” – Liz Perle, editor in chief at Common Sense Media
• “A Bad Idea From the Start” – Robert Thompson, Syracuse University
• “Put Parents in Control” – Adam Thierer, president, The Progress & Freedom Foundation
• “It’s the Violence!” – Kevin W. Saunders, professor of law, Michigan State University

I was particularly interested in former FCC’s Chairman Michael Powell’s admission that “The [FCC’s] fleeting expletive policy was a mistake,” and that “the real problem is the now-flawed constitutional foundation on which the law is built.” Powell goes on to argue that, “We cannot have one First Amendment for broadcasting and another one for every other medium. This vestige of a bygone era provides fertile ground for mischief — culture wars, political agenda and moral mandates. It’s high time for the high court to bring our laws into the 21st century.”

I wholeheartedly agree, and I wrote a lengthy law review article on just that topic back in 2007 entitled,“ Why Regulate Broadcasting: Toward a Consistent First Amendment Standard for the Information Age.” If you find it too boring, just watch this video I made summarizing the key points, which I called “America’s First Amendment Twilight Zone.”

It’s intended as a cute line, but the opener of Stephanie Clifford’s New York Times story about custom coupons is packed with ideological assumptions: “For decades, shoppers have taken advantage of coupons. Now, the coupons are taking advantage of the shoppers.”

Meta-data in printed coupons can reveal much about the people using them.

Here’s a shocker, people: Free money might come with strings attached.

It would be wrong to dismiss the privacy problems that custom coupons might contain. They’re similar to the privacy problems that lots of other new technologies and business processes have. But the starting point if you worry about them is that you don’t have to use them.

I don’t—and it’s not even because of privacy worries. I just don’t.

But Clifford quotes two advocates of government regulation in her article—zero advocates of freedom, market experimentation, or innovation. Ed Mierzwinski, consumer program director for the United States Public Interest Research Group, says, “There really have been no rules set up for this ecosystem.”

Rules, rules. Anything new has to be draped in rules.

I would have opened the article saying, “For decades, shoppers have taken advantage of coupons. Now, the deal is going to be a little more fair.” Where does the story go from there?

Michiko Kakutani has a very interesting essay in the New York Times entitled, “Texts Without Contexts,” which does a nice job running through the differences between Internet optimists and pessimists, a topic I’ve spent a great deal of time writing about here. (See: “Are You An Internet Optimist or Pessimist? The Great Debate over Technology’s Impact on Society.”) She surveys many of the books I’ve reviewed and discussed here before by authors such as Neil Postman, Nick Carr, Cass Sunstein, Andrew Keen, Mark Helprin, Jaron Lanier, and others. She notes:

These new books share a concern with how digital media are reshaping our political and social landscape, molding art and entertainment, even affecting the methodology of scholarship and research. They examine the consequences of the fragmentation of data that the Web produces, as news articles, novels and record albums are broken down into bits and bytes; the growing emphasis on immediacy and real-time responses; the rising tide of data and information that permeates our lives; and the emphasis that blogging and partisan political Web sites place on subjectivity. At the same time it’s clear that technology and the mechanisms of the Web have been accelerating certain trends already percolating through our culture — including the blurring of news and entertainment, a growing polarization in national politics, a deconstructionist view of literature (which emphasizes a critic’s or reader’s interpretation of a text, rather than the text’s actual content), the prominence of postmodernism in the form of mash-ups and bricolage, and a growing cultural relativism that has been advanced on the left by multiculturalists and radical feminists, who argue that history is an adjunct of identity politics, and on the right by creationists and climate-change denialists, who suggest that science is an instrument of leftist ideologues.

It’s a great debate, but a very controversial one, of course.  Anyway, go read her entire essay.

by Adam Thierer & Berin Szoka, Progress Snaphot 6.1

Stephanie Clifford of the  New York Times posted a very interesting article this week summarizing a recent “on-the-record chat” the Times staff had with Federal Trade Commission (FTC) chairman Jon Leibowitz and FTC Bureau of Consumer Protection chief David Vladeck.  The interview [discussed by Braden here] is profoundly important in that it reveals an alarming disconnect regarding the relationship between “privacy” regulation and the future of media, which were the subjects of their discussion with Times staff.  Namely, Leibowitz and Vladeck apparently fail to appreciate how the delicate balance between commercial advertising and journalism is at risk precisely because of the sort of regulations they apparently are ready to adopt.  Because the value of online advertising depends on data about its effectiveness and consumers’ likely interests, and because advertising is indispensable to funding media, what’s ultimately at stake here is nothing short of the future of press freedom.

The “Day of Reckoning” Is Upon Us

Leibowitz and Vladeck spend the first half of The Times interview wringing their hands about “privacy policies,” the declarations made by websites and advertising networks about their data collection and use practices (for which the FTC can and must hold them accountable).  But the two feel that privacy policies don’t adequately inform consumers.  Chairman Leibowitz claims that online companies “haven’t given consumers effective notice, so they can make effective choices.”  And Mr. Vladeck states that advise-and-consent models “depended on the fiction that people were meaningfully giving consent.” But he and the FTC seem ready to abandon the notice and choice model because the “literature is clear” that few people read privacy policies, Vladeck told the Times.  He and Leibowitz continue:

“Philosophically, we wonder if we’re moving to a post-disclosure era and what that would look like,” Mr. Vladeck said. “What’s the substitute for it?” He said the commission was still looking into the issue, but it hoped to have an answer by June or July, when it plans to publish a report on the subject. Mr. Leibowitz gave a hint as to what might be included: “I have a sense, and it’s still amorphous, that we might head toward opt-in,” Mr. Leibowitz said.

This clearly foreshadows the regulatory endgame we have long suspected was coming.  When the FTC released its “Self-Regulatory Principles for Online Behavioral Advertising” eleven months ago, we asked: “What’s the Harm & Where Are We Heading?”  Their answers to both questions have become clearer with each new calculated comment—all apparently intended to slowly “turn up the heat” on the advertising industry so that the proverbial frog will stay in the pot until the water finally boils.  Leibowitz’s FTC has simply dodged the “harm” question with a four-part strategy:

1. Cobble together a “record” full of sympathy-evoking anecdotes submitted by advocates of regulation in comments and the FTC’s ongoing “Exploring Privacy” Roundtables;
2. Let the most extreme Chicken Littles fulminate about the grand conspiracy of “neuromarketing manipulation” and the like (and sometimes even shout down FTC staff in panel discussions) in order to redefine the “reasonable center” of the debate;
3. Define-down “harm” as purely a matter of “consumer expectations” or consumers’ “dignity interests” (whatever that vague and infinitely elastic term means); and
4. Attack the effectiveness of “consent” itself by suggesting that consumers cannot be trusted to understand privacy policies or be expected to make any effort to protect their own privacy.

Conveniently, this strategy leads right back to the “day of reckoning” Chairman Leibowitz threatened was coming last February: We are heading precisely where he told us we would be—to full-on, opt-in regulation.  The writing on the wall becomes more apparent every day: Leibowitz set out to bring online advertising to heel even before becoming Chairman, and his Commission is reprising almost precisely the same approach that led to the passage of the Children’s Online Privacy Protection Act (COPPA) of 1998: building a case for new authority, dismissing industry self-regulation as ineffective, and finally presenting a report to Congress intended to produce a rapid legislative response.  After the FTC presented its report on the need for regulation in congressional testimony in June 1998, it took Congress just four months to pass COPPA—and much of that time was consumed by the summer recess.  In short, Leibowitz is mounting a carefully choreographed campaign for increased regulation.

The only real question is whether Leibowitz will somehow try to use the FTC’s existing authority over “unfair or deceptive” trade practices or wait for expanded authority from Congress.  While most observers typically assume that such expanded authority would come in the form of a privacy-specific bill—be it a broad “baseline” privacy bill or one specifically focused on online data collection for advertising purposes—the authority Leibowitz yearns for could just as easily come in the form of increased rulemaking authority as part of a broader bill that allows the FTC to preemptively regulate practices that are not deceptive but merely deemed “unfair.”

This would take the agency “ Back to the Future”—to the late 1970s, when the agency reached the height of its efforts to regulate purely on “unfairness” grounds by trying to ban advertising to children.  The agency’s behavior earned it the moniker “National Nanny” from the Washington Post, hardly a bastion of regulatory skepticism.[1] That outpouring of popular resentment caused a heavily Democratic Congress to cut-off the Democratic-led agency’s regular funding and prohibit it from regulating advertising merely on the grounds of “unfairness.”  In essence, they told the agency to “go back to its knitting” and focus on protecting consumers from demonstrated harms.^[2] Duly chastened (and actually shut down for several days), the FTC formulated a meaningful legal standard for “unfairness,” which Congress codified in 1994: for a practice to be unfair, the injury it causes must be (1) substantial, (2) without offsetting benefits, and (3) one that consumers cannot reasonably avoid.

Under this statutory standard, as FTC Commissioner Thomas Rosch has argued, the commission must carefully consider:

[the] legitimate pro-consumer and pro-competitive benefits that result from [targeted advertising]. Absent hard data weighing these benefits against the limited “invasion of privacy interests” involved, it would seem difficult to conclude that treating that practice as an actionable violation of the “unfairness” prong of Section 5 will pass muster.[3]

So Leibowitz and Vladeck either need to get serious about weighing the costs and benefits of targeted advertising—or, in the absence of such actually measuring these trade-offs, get Congress to give them the authority to regulate.  But one thing is clear from their past statements: they are in a hurry to do  something. As Vladeck told The Times last August, “There is a sense of urgency around here… Consumers, I don’t think are sufficiently protected under the current regime.”  Apparently, the case is closed in their minds.

“Left Hand, Meet Right Hand”

The second half of the  Times interview concerns the future of news. Chairman Leibowitz is not optimistic:

“There are some areas where you clearly see positive creative destruction,” Mr. Leibowitz said, giving the example of travel agents who were replaced by Orbitz and other online-booking systems. The news, he said, was not one of those. “When you’re dealing with something as critical as news is to a democracy, you need to ensure, certainly, that it’s independent, but also that it’s vibrant going forward,” he said. Areas like investigative reporting, foreign and domestic bureaus, and state-house reporting, he said, would likely falter under blog operations because of “economies of scale.”

He said he wasn’t sure what the solution was, but threw out a few ideas discussed at the conference: maybe special tax treatment for newspapers, a Corporation for Public Broadcasting-like fund, or for the newspaper industry to charge fees for the re-use of its content, similar to the model that the American Society of Composers, Authors and Publishers uses. [emphasis added]

Mr. Chairman, with all due respect, haven’t you forgotten about the solution that has powered private media for a few centuries in this country?  You know— advertising!  Indeed, what’s stunning about these comments is the complete disconnect with what Leibowitz and Vladeck said earlier in the interview.  It certainly may be the case that they said more on the subject than what The Times has reported, but given their escalating rhetoric, it seems likely that significantly increased FTC regulation is on the horizon.  And, yet, as Chairman Leibowitz marches us into this brave new world of regulating Internet media through their key funding source, he and Mr. Vladeck seem to have little appreciation of the vital role played by advertising in sustaining a truly free and vibrant press.

An Attack on Advertising Is an Attack on Media Itself

Let’s step back and revisit Media Economics 101.  Almost every serious scholar in the field acknowledges this truism: Advertising cross-subsidizes media platforms and the creation of valuable information—especially news.  “Advertising is the mother’s milk of all the mass media,”  Wall Street Journal technology columnist Walt Mossberg has noted.  Similarly, Harold L. Vogel, author of Entertainment Industry Economics, the leading text in the field, has noted, “Advertising is the key common ingredient in the tactics and strategies of all entertainment and media company business models.  Indeed, it might further be said that advertising has substantively subsidized the production and delivery of news and entertainment throughout the last century.”[4] Mossberg agrees and notes, “Without ads, most editorial products and other programming would be either unavailable or prohibitively expensive.”

The reason for the indispensability of advertising is simple: Information (including news and other forms of “content”) has “public good” characteristics that make it is very difficult (and occasionally impossible) for information-publishers to recoup their investments.  Simply put, they quite literally lack pricing power: Whatever they charge, someone else will charge less for a close substitute, inevitably leading to “free” distribution of the content, even though the content is anything but free to produce.  Advertising is the one business model that has traditionally saved the day by rewarding publishers for attracting the attention of an audience.

Which raises another under-appreciated point: Private advertising promotes press independence.  “Newspapers, magazines, radio, television, and many websites all receive their primary income from advertising,” notes William F. Arens, author of  Contemporary Advertising, another leading textbook in the field. “This facilitates freedom of the press and promotes more complete information” he concludes.[5] Why?  Because, contrary to what some critics claim, advertising and marketing help keep private media providers independent of the need for taxpayer subsidies or private patrons.  This begs an even more profound question: If not advertising, then what else?

A “Public Option” for the Press?

What’s most troubling about Chairman Leibowitz’s comments to the Times is that he has apparently found his alternative to advertising: a “public option” for the press! He mentions special tax treatment for newspapers or a new CPB-like fund (don’t we already have one?) as two possibilities.  That certainly will be music to the ears of radical, pro-regulatory activist groups like the ironically-named “Free Press,” which wants to see a massive “public works” program for the media sector.

Free Press recently filed comments with the FTC in the agency’s recent workshop, “Can Journalism Survive the Internet Age?” and proposed a far-reaching industrial policy for “saving the news.”  They call for over $50 billion in subsidies for the Corporation for Public Broadcasting and other bureaucracies, a “journalism jobs program” for that would be part of AmeriCorps, a variety of new tax incentives for struggling media operations or individuals who support favored institutions, and an assortment of government incentives to encourage local ownership and media divestiture (by handing over control to smaller operators or minority-owned groups).  Ironically, “Free Press” has also floated the concept of “a small tax on advertising” as one way to pay for a press bailout.

The organization’s founder Robert W. McChesney, the prolific neo-Marxist media scholar, penned an essay with John Nichols of The Nation last year, claiming that saving journalism essentially requires that media become an appendage of the State.  Although advertising has supported journalism as a “public good” for centuries, the only way they can conceive to provide a public good is to socialize its means of production.  Thus, journalism, like education and national defense, requires constant government oversight and support: “A moment has arrived at which we must recognize the need to invest tax dollars to create and maintain news gathering, reporting and writing with the purpose of informing all our citizens.”  They ask us to consider the $60 billion in government spending they propose as a “free press ‘infrastructure project,’” which would “keep the press system alive.”

Some in Congress seem willing to listen.  The Senate has already held hearings about the future of journalism.  And Senator Benjamin L. Cardin (D-MD) recently introduced what he has called the “Newspaper Revitalization Act,” which would allow newspapers to become nonprofit organizations in an effort to help them stay afloat.  Importantly, however, the bill would also disallow political endorsements on newspaper editorial pages—which, like campaign finance restrictions, would be a boon for incumbent politicians.  That bill should serve as fair warning to journalists about the sort of strings lawmakers will attach to press-welfare efforts going forward.  What other “golden shackles” might come with media subsidies?

To be clear, Chairman Leibowitz hasn’t called for a complete press takeover along the lines of the Free Press plan.  Yet, he hasn’t answered a key question in this debate: Who pays for news?  He appears ready to endorse a bold new regulatory scheme for the Internet and online media that, in the name of “protecting privacy” would put at risk the one traditionally successful method of supporting private media operations—advertising.  As the Pew Research Center’s Project for Excellence in Journalism noted in its latest State of the News Media report, “The problem facing American journalism is not fundamentally an audience problem or a credibility problem.  It is a revenue problem—the decoupling… of advertising from news.”  There’s probably no way policymakers can stop this process, nor should they try.  But they shouldn’t be creating new obstacles to the survival of traditional media creators, either.

Unfortunately, that’s exactly what Chairman Leibowitz’s new regulatory scheme would do.  The revenue “delta” between “smart” advertising (tailored to consumers’ likely interests and measured for effectiveness in producing clicks, purchases, etc.) and “dumb advertising” (based purely on surrounding keywords or demographics of users presumed to visit the site) is difficult to measure but potentially enormous—even 10 times as great for some sites.[6] The difference between opt-in and opt-out could be nearly as dramatic, because it’s difficult to get consumers to opt-in for anything, especially for small players—which means that opt-in regulation could, perversely, force consolidation in the online advertising and content markets.  If the FTC cares about its statutory responsibility to safeguard competition, they should take this dynamic seriously and be hyper-cautious about heavy-handed mandates that could derail smarter advertising.

Finally, to be fair, in his interview, the Chairman also suggests the newspaper industry might want to find new way “to charge fees for the re-use of its content.”  We’re certainly not opposed to the notion and think that, if it could somehow be made to work (especially by removing antitrust obstacles), it could part of a diverse revenue mix for digital journalism.  But, there’s the rub.  Micropayments inevitably face the problem of “mental transaction costs”  that likely swamp the perceived value of most content and, like pay-walls, have generally worked only in media environments characterized by a scarcity of providers and a uniqueness of a sufficiently valuable product.  These cold, hard economic realities are why advertising remains indispensable.

The Principled Alternative to Regulation

Convinced that privacy policies simply don’t work, Leibowitz and Vladeck are asking what a “post-disclosure era” would look like.  We appreciate the continued sensitivities expressed by certain groups and individuals about online privacy and data use more generally.  But there is another way forward.  We have proposed the following “5-E” layered approach to concerns about online privacy, focusing on restraining government access to data as a clear harm, rather than crippling the private sector uses of data that directly benefit consumers:

1. Erect a higher “Wall of Separation between Web and State” by increasing Americans’ protection from government access to their personal data—thus bringing the Fourth Amendment into the Digital Age.
2. Educate users about privacy risks and data management in general as well as specific practices and policies for safer computing.
3. Empower users to implement their privacy preferences in specific contexts as easily as possible.
4. Enhance self-regulation by industry sectors and companies to integrate with user education and empowerment.
5. Enforce existing laws against unfair and deceptive trade practices as well as state privacy tort laws.

Such a layered approach would not only be a “less restrictive” alternative to top-down, one-size-fits-all government regulation, but also potentially more effective in key respects than government data use/collection mandates.  In an ideal world, adults would be fully empowered to tailor privacy decisions, like speech decisions, to their own values and preferences (“household standards”).  Consumers would have (1) the information necessary to make informed decisions and (2) the tools and methods necessary to act upon that information. Importantly, those tools and methods would give them the ability to block the things they don’t like—annoying ads or the collection of data about them, as well as objectionable content—while also helping them find the information and content they desire.

But of course, the devil’s in the details.  Leibowitz and Vladeck would set the bar so high as to what constitutes “effective” consumer choice that current privacy policies necessarily fail their test—if only because most users don’t care enough to make the “right” privacy choices.  Privacy policies, even if read by relatively few consumers, nonetheless allow privacy advocates, journalists and watchdog-bloggers to scrutinize what companies say they’re doing—promises to which the FTC should hold companies stringently.  That’s clearly not good enough for Leibowitz and Vladeck, who want to give up on “notice and choice” and move on to “opt-in” mandates.  But why not first try to make “notice” more effective?  The advertising industry is currently developing standardized interfaces that could communicate key information about privacy practices in a single icon, label or other easily-digested “consumer touch point.”

More radically, why focus on tinkering with consumer interfaces, when standardized data disclosure formats like the Protocol for Privacy Preferences (P3P) could distill legalistic privacy policies into “machine-readable” code?  Such disclosures could provide a powerful form of “notice” that the ordinary consumer could “use”: simply setting their own privacy preferences in a browser tool that automatically implements those preferences by blocking tracking that users object to.  Such a privacy disclosure format could also allow the FTC to automate enforcement of its existing authority to punish unfair or deceptive trade practices.

Conclusion

And so we return to the question the FTC asked in its recent workshop, “Can Journalism Survive the Internet Age?”  Answer: Not if the FTC kills the golden goose that lays the golden eggs through onerous advertising regulations and data controls in the name of “privacy.”  Chairman Leibowitz and Bureau Chief Vladeck shouldn’t foreclose the possibility that advertising can play a central role in the future of a free press in the Digital Age—just as it has done historically in the United States.  Indeed, they would be wise to remember that advertising has always been with us.  As the Supreme Court noted in its 1996 decision, 44 Liquormart, Inc. v. Rhode Island.

Advertising has been a part of our culture throughout our history. Even in colonial days, the public relied on “commercial speech” for vital information about the market. Early newspapers displayed advertisements for goods and services on their front pages, and town criers called out prices in public squares. Indeed, commercial messages played such a central role in public life prior to the founding that Benjamin Franklin authored his early defense of a free press in support of his decision to print, of all things, an advertisement for voyages to Barbados.[7]

Of course, for advertising to continue to play the role as sustainer of the press, it must be allowed to evolve.  Media operators—large and small alike—must be allowed to craft new strategies, some of which may require data collection and marketing practices that will make some privacy-sensitive users uncomfortable, but will also ensure that the goose keeps on laying golden eggs for them and everyone else.

While Chairman Leibowitz may decry the creative destruction at work in the news sector and information industries today, that shakeup will continue and, no doubt, be painful for incumbent players.  Advertising alone may not “save the day” for media as it has in the past, but it will likely remain essential to sustaining private media platforms and providers going forward— if federal policymakers allow it.  The alternative—massive government intervention into the news and media sectors—is too horrifying to think about.

[1] Washington Post, March 1, 1978.

[2] Congress terminated the FTC’s efforts to prohibit advertising to children, and barred the agency from issuing any advertising regulation predicated solely on unfairness for three years.  FTC Improvements Act, Pub. L. No. 96-252, § 11 (May 1980).  See generally J. Howard Beales, Director of the Bureau of Consumer Protection, Federal Trade Commission, The FTC’s Use of Unfairness Authority: Its Rise, Fall, and Resurrection, www.ftc.gov/speeches/beales/unfair0603.shtm.

[3] Thomas Rosch, Some Reflections on the Future of the Internet: Net Neutrality, Online Behavioral Advertising, and Health Information Technology, Remarks at U.S. Chamber of Commerce Telecommunications & E-Commerce Committee Fall Meeting, October 26, 2009, 13, www.ftc.gov/speeches/rosch/091026chamber.pdf.

[4] Harold L. Vogel, Entertainment Industry Economics (Cambridge, MA: Cambridge University Press, 7th Edition, 2007), at 46.

[5] William F. Arens, Contemporary Advertising (McGraw-Hill Irwin, 10^th Ed., 2006) at 50.

[6] See Berin Szoka & Mark Adams, The Benefits of Online Advertising & Costs of Privacy Regulation, PFF Working Paper, Nov. 8, 2009, www.scribd.com/doc/22445754/Benefits-of-Online-Advertising-Paper.

[7] 517 U.S. 484, 495 (1996), http://www.law.cornell.edu/supct/html/94-1140.ZO.html

______________________________

Related PFF Publications

• Privacy Trade-Offs: How Further Regulation Could Diminish Consumer Choice, Raise Prices, Quash Digital Innovation & Curtail Free Speech, Berin Szoka, Comments to the Federal Trade Commission “Exploring Privacy” Roundtable, November 10, 2009.
• Online Advertising & User Privacy: Principles to Guide the Debate, Berin Szoka & Adam Thierer, Progress Snapshot 4.19, Sept. 2008.
• Targeted Online Advertising: What’s the Harm & Where Are We Heading?, Berin Szoka & Adam Thierer, Progress on Point 16.2, April 2009.
• Privacy Polls v. Real-World Trade-Offs, Berin Szoka, Progress Snapshot 5.10, Oct. 2009.
• The Benefits of Online Advertising & Costs of Privacy Regulation, Berin Szoka & Mark Adams, PFF Working Paper, Nov. 8, 2009.
• Benefits of Online Advertising, Berin Szoka, Mark Adams, Howard Beales, Thomas Lenard & Jules Polonetsky, PFF Capitol Briefing, July 2009.
• Public Option for Press Should Get the Red Pen, Adam Thierer, The Daily Caller, Jan. 12, 2010.

“It was then, and is now, the largest merger in American business history,” notes Tim Arango of the New York Times about the AOL-Time Warner mega-merger, which happen ten years this month. And yet, as he points out in his essay, “How the AOL-Time Warner Merger Went So Wrong,” things didn’t end up going so well for this marriage:

The trail of despair in subsequent years included countless job losses, the decimation of retirement accounts, investigations by the Securities and Exchange Commission and the Justice Department, and countless executive upheavals. Today, the combined values of the companies, which have been separated, is about one-seventh of their worth on the day of the merger. To call the transaction the worst in history, as it is now taught in business schools, does not begin to tell the story of how some of the brightest minds in technology and media collaborated to produce a deal now regarded by many as a colossal mistake.

Arango goes on to interview several of the principals involved in the deal to get their take on why things unfolded so miserably and, ultimately, came to an end this year. I highly recommend the essay because it should serve as a cautionary tale to those worrywarts who are constantly predicting that the sky is going to fall if we allow a truly free media marketplace–including freedom for firms to structure themselves as they wish.  Reality usually plays out quite differently.  As I argued in my recent paper, “A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC,”

The point here is not that media mergers are inherently good or always make sense. Indeed.. mergers sometimes prove to be huge blunders. But the hysteria sometimes heard before media mergers are consummated rarely bears any relationship to reality once the deals move forward. Media markets are extremely dynamic and prone to disruptive change and technological leap-frogging. Mergers are often one response to that turbulence… Given how difficult it is to predict the future course of events in this chaotic sector, humility—not hubris—is the sensible disposition when it comes to media merger policy.

Three months ago, when the DC Circuit struck down the FCC’s “Cable Cap”—which prevented any one cable company from serving more than 30% of US households out of fear that he larger cable companies would use their “gatekeeper” power to restrict programming—the New York Times bemoaned the decision:

The problem with the cap is not that it is too onerous, but that it is not demanding enough. Even with the cap — and satellite television — there is a disturbing lack of price competition. The cable companies have resisted letting customers choose, a la carte, the channels they actually watch…. [The FCC] needs to ensure that customers have an array of choices among cable providers, and that there is real competition on price and program offerings.

Perhaps the Times‘ editors should have consulted with the Lead Technology Writer of their excellent BITS blog.  Nick Bilton might have told him the truth: “Cable Freedom Is a Click Away.”  That’s the title of his excellent survey of devices and services (Hulu, Boxee, iTunes, Joost, YouTube, etc.) that allow users to get cable television programming without a cable subscription.

Nick explains that consumers can “cut the video cord” and still find much, if not all, their favorite cable programming—as well as the vast offerings of online video—without a hefty monthly subscription.  (Adam recently described how Clicker.com is essentially TV guide for the increasing cornucopia of Internet video.)  This makes the 1992 Cable Act’s requirement that the FCC impose a cable cap nothing more than the vestige of a bygone era of platform scarcity, predating not just the Internet, but also competing subscription services offered by satellite and telcos over fiber.  That’s precisely what we argued in PFF’s amicus brief to the DC Circuit a year ago, and largely why the court ultimately struck down the cap.

Bilton notes that “this isn’t as easy as just plugging a computer into a monitor, sitting back and watching a movie. There’s definitely a slight learning curve.”  But, as he describes, cutting the cord isn’t rocket science.  If getting used to using a wireless mouse is the thing that most keeps consumers “enslaved” to the cable “gatekeepers” the FCC frets so much about, what’s the big deal?  Does government really need to set aside the property and free speech rights of cable operators to run their own networks just because some people may not be as quick to dump cable as Bilton?  Is the lag time between early adopters and mainstream really such a problem that we would risk maintaining outdated systems of architectural censorship (Chris Yoo’s brilliant term) that give government control over speech in countless subtle and indirect ways?

If we were talking about just another subscription video service like satellite and telco fiber, the demise of cable as a unique “bottleneck” for programming might not be so obvious to the layperson (although MVPD competition is quite stunning, and means that “subscription service freedom is just a phone call or click away”).  But in the case of Internet video, the programming is à la carte by show and often free  (i.e., ad-supported), so consumers have a huge incentive to switch or can simply “put their toe in the water” before finally taking the plunge altogether.  As Bilton notes, he’s saving a fortune ($1,600/year):

Although the initial investment was costly, totaling $550, it took only a few months to recoup the money. Back in the olden days of cable we were forced to shell out a relatively standard $140 a month, for television service alone. This cost gave us access to a digital video recorder and hundreds of unwatched TV channels. Contrast this with today, where our only expense is $9 a month to stream Netflix videos from the Web and the $30 a month that we always spent on an Internet connection. O.K., maybe that’s not completely accurate. When the wireless keyboard died a few weeks ago I was forced to spend another $4 for two new AA batteries. We’ve not yet recovered from that financial loss… Tunes can get expensive. If you watch premium-cable television shows, you can pay more than $40 for the season of a single show. But even that is less than one month of cable. Since there are so many other entertainment options online, we just skip “Dexter” and “Weeds.” Trust me, there is a lot of great free or ad-supported content out there.

The experience isn’t that different, but it is richer:

We still come home from work and watch any number of shows, just like the people who continue to pay for cable. We just do it a little differently, starting the computer and then using services like Hulu, Boxee, iTunes and Joost. Another interesting twist to this experience is that we’re no longer limited to consuming traditional programming. With these applications we can spend an entire evening flicking through videos from YouTube, CollegeHumor or Web-only programs.

Mark my words: stories like this one will become increasingly representative of the mainstream, just as huge numbers of consumers have “cut the landline cord” in favor of cell phones.  By the time the FCC gets around to coming up with a new cable cap—using some inventively”fresh approach,” as the Times suggests, no doubt—stories like this one will be passé, and today’s world of cable TV subscriptions will have gone the way of the landline, rabbit ears, the fax machine, the mimeograph and the stereoscope.  The FCC, the Times’ editorialists, and all the other media reformista groups that keep screaming for regulation to slay phantoms of a bygone era will look mighty foolish, indeed.

On a final note, savvy observers will notice the similarity between Bilton’s slogan (“Cable Freedom Is a Click Away”) and Google’s mantra about its various services (“Competition is just one click away“).  Both run contrary to the prevailing assumption behind so much communications/Internet policymaking that users are too lazy, ignorant, stupid and/or helpless to find, explore, try, or even understand new tools, products, services or models.  One could raise legitimate questions about how competition plays out on the other side of these two-sided markets (advertising in the case of search and programming in the case of cable television), but to deny that consumers are capable of “clicking away” is to assume that they are mindless sheep.

The New York Times, to their credit and despite their editorial position on cable regulation, certainly seems to have a higher opinion of our intelligence—or they wouldn’t have bothered with Bilton’s excellent do-it-yourself guide.  In the case of television programming, the “sheep”  have begun overrunning  whatever “gates” once contained them and flooding into the verdant pastures of Internet video programming abundance.  More will soon follow in droves, and cable operators will do everything they can to keep their “grass” (programming choices) as “green” (abundant and diverse) as possible, just to compete.  The FCC’s continued meddling is simply unnecessary, counterproductive and dangerous as a precedent for outdated regulatory controls.

The Comcast-NBC deal has the traditional media world all atwitter—well, better call it aflutter. “Atwitter” is losing its old media connotations.

So the New York Times rounded up a foursome of advocates to air their views, among them Adam Thierer and yours truly.

Huzzahs and rotten fruit in the comments, please.

(And you can see from comparing our posts which of us believes in economy in the use of words.)

Today, Jim Harper and I took on Andy Schwartzman of Media Access Projects and Gigi Sohn of Public Knowledge in this New York Times online debate about, “Should Consumers Fear the Comcast Deal?”  Like other media critics, Schwartzman and Sohn adopt the gloom and doom tone that many worrywarts use when discussing the deal. Andy Schwartzman says “Comcast’s proposed acquisition of NBC Universal poses a genuine threat to free expression and diversity of speech in our democratic society.” And Gigi Sohn predicts that “With all that programming under its control, Comcast will have every incentive to take its shows off of the Internet and force consumers to buy a cable subscription to get online access to that programming.”

But as Jim Harper and I point out, we’ve heard such Chicken Little horror stories before. Whether it was AOL-Time Warner, News Corp-DirecTV, Sirius-XM, or whatever else, the story is always that a veritable media apocalypse awaits if the deals aren’t blocked.  But it just ain’t so. As I note in my response:

Back in the real world, the sky never fell — except on the merging companies! Just two years after the deal was announced, AOL-Time Warner had lost over $100 billion and Time Warner has now spun off AOL entirely. The News Corp.-DirecTV marriage ended in divorce after just three years. And Sirius-XM flirted with bankruptcy earlier this year as listeners continue to flock to other audio options. The moral of the story: markets worked. Shareholders abandoned bad deals, new niche markets developed, and innovative digital technologies continue to revolutionize media.

And as Harper notes in response to silly claims about restricting access to content or communications, “Comcast-NBC can no more impinge on communications among Internet users than AOL-Time Warner did.” Which is to say, not at all. They would be doomed if they tried to play such games. You can’t make money or retain viewers or customers by cutting off access to content or conduit. Finally, “the genuine threat to free expression and diversity of speech” is not Comcast-NBC, as Schwartman suggests, but a government big enough to crush media companies and control media platforms as if they were their playthings.

For more details about the actual historical record, check out my recent PFF white paper: “A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC.”

Google Trends for websites reveals all kinds of fascinating insights into the way technology is reshaping the world. Among them is the fact that the HuffingtonPost.com has matured from a scruffy group blog into a new media powerhouse to rival the Wall Street Journal and Washington Post:

Note that the convergence of these three sites has happened both because HuffPo has doubled its audience and because the audience for the WashingtonPost.com has shrunk by half.  While WSJ.com’s audience has returned to roughly its pre-election level, the decline of NYTimes.com suggests that the Internet really is splintering audiences and bringing the giants of news media like the “Gray Lady” down from their once unassailable heights:

In response to Professor Jonathan Zittrain’s op-ed in The New York Times last Monday about online privacy and open platforms (which Adam thoroughly refuted last week) I have a letter to the editor in today’s The New York Times:

To the Editor: Re “Lost in the Cloud” (Op-Ed, July 20): In discussing the privacy risks that have accompanied the growth of the Internet, Prof. Jonathan Zittrain rightly bemoans the willingness of governments to violate individuals’ privacy rights. Unfortunately, he proposes new legal restrictions that would stifle online innovation while doing little to enhance consumer privacy. Mr. Zittrain proposes a “fair practices law” that would require companies to release personal data back to users upon request. Such a rule may sound workable, but purging specific data across globally dispersed server farms is no simple endeavor. Who is to pay for the implementation of such privacy procedures — especially for free services like Facebook or Twitter that have yet to turn a profit? A better approach to online privacy is to educate users on safeguarding personal information. Ultimately, however, the only foolproof approach to protecting sensitive data online is to simply not disclose it.

To clarify my last point, I don’t think that universal nondisclosure of sensitive data online is necessarily a wise approach to privacy. Rather, my point is that it’s important to remember that transmitting data on the Internet — a very public network — entails some degree of risk, no matter how strong the encryption or how diligent the party at the other end. And free services like Facebook and Twitter are all about making personal information public — they simply aren’t designed to provide ironclad data security or anything remotely resembling it. Other online services, like bank websites or enterprise-grade Web collaborative tools, are able to offer far stronger privacy assurances backed by strong terms of service. Privacy is not a black and white matter. It involves shades of gray, which is one reason why legislation is such an ineffective means of dealing with privacy challenges.

Well, here we go again. Harvard’s Jonathan Zittrain has penned another gloomy essay about how “freedom is at risk in the cloud” and the future of the Internet is in peril because nefarious digital schemers like Apple, Facebook, and Google are supposedly out to lock you into their services and take away your digital rights.  And so, as I have done here many times before (see 1, 2, 3, 4, 5 + video!), I will offer a response arguing that Jonathan’s cyber-Chicken Little-ism is largely unwarranted.

Zittrain’s latest piece is entitled “Lost in the Cloud” and it appears in today’s New York Times.  It closely tracks the arguments he has set forth in his book The Future of the Internet–And How to Stop It, which I named the most important technology policy book of 2008, but not because I agreed with its central thesis.  Zittrain’s book and his new NYT essay are the ultimate exposition of Lessigite technological pessimism.  I don’t know what they put in the water up at the Berkman Center to make these guys so remarkably cranky and despondent about the future of of the Internet, but starting with Lawrence Lessig’s Code in 1999 and running through to Zittrain’s Future of the Internet we have been forced to endure endless Tales of the Coming Techno-Apocalypse from these guys.  Back in the late 90s, Prof. Lessig warned us that AOL and some other companies would soon take over the new digital frontier since “Left to itself, cyberspace will become a perfect tool of control.”  Ah yes, how was it that we threw off the chains of our techno-oppressors and freed ourselves from that wicked walled garden hell?  Oh yeah, we clicked our mouses and left! And that was pretty much the end of AOL’s “perfect control” fantasies. [See my recent debate with Prof. Lessig over at Cato Unbound for more about this “illusion of perfect control,” as I have labeled it.]

But Zittrain is the equivalent of the St. Peter upon which the Church of Lessigism has been built and, like any good disciple, he’s still vociferously preaching to the unconverted and using fire and brimstone sermons to warn of our impending digital damnation. In fact, he’s taken it to all new extremes. In Future of the Internet, Jonathan argues that we run the risk of seeing the glorious days of the generative, open Net and digital devices give way to more “sterile, tethered devices” and closed networks. The future that he hopes to “stop” is one in which Apple, TiVo, Facebook, and Google — the central villains in his drama — are supposedly ceded too much authority over our daily lives because of a combination of (a) their wicked ways and (b) our ignorant ones.

First, let’s talk about those corporate wicked ways. Jonathan waxes nostalgic about a mythical time not long ago when technologies were supposedly far more “open and generative” than they are now. In Jonathan’s revisionist history of the digital olden times, we are told that the early PC era was somehow the model for openness and generativity.  That’s damn peculiar to an old-timer like me because all I remember from those days is the tall stacks of proprietary programs sitting on my desk + a keyboard and other peripherals that were all hard-wired to the monitor + a guy named Bill Gates who was typically likened to the Darth Vader of openness.  In Zittrain’s retelling of things, however, those Digital Dark Ages have suddenly become the good ol’ days!  The real threat to openness and digital freedom, however, is now right before us.. or just over our head it seems. It’s up there in the cloud, he tells us. The freedom that “tinkerers and hackers” once enjoyed in those glorious good ‘ol days “is at risk in the cloud, where the vendor of a platform has much more control over whether and how to let others write new software,” Zittrain says.

Excuse me? Why would it be the case that generativity is now somehow more at risk today than it was in the era where we had to wake up every morning and wait for a C:\ prompt before loading an operating system or $50 spreadsheet software via three different 5.25 floppy disks?  [Seriously, does anybody else besides me remember how much those days sucked?]  Well, it turns out that the answer to that question goes back to the ignorant ways of the digital hoi polloi that I mentioned above.  You see, we are all sheep who just don’t know what’s good for us. Or here’s how Jonathan puts it, albeit spinning it in such a way to make his elitist pronouncements somewhat easier to swallow:

The market is churning through these issues. […] But the dynamics here are complicated. When we vest our activities and identities in one place in the cloud, it takes a lot of dissatisfaction for us to move. And many software developers who once would have been writing whatever they wanted for PCs are simply developing less adventurous, less subversive, less game-changing code under the watchful eyes of Facebook and Apple.

Ooooo.. spooky!  Beware ye naive Netizens, for “the watchful eyes of Facebook and Apple” are upon you!

No, seriously, what the hell does all that mean and what the heck is the problem here? By no conceivable stretch of the imagination can one paint a portrait of the Digital Dark Ages for me that makes that era look better than the Digital Renaissance we are now living through. There’s never been a better time to be tinkerers, hackers, or just regular citizen-consumers in cyberspace.

So, what gives?  Why is it that two smart guys like Lessig and Zittrain always seem to fear to worst even in the midst of a cornucopia of cyber-choices?  It comes back to the hyper-pessimism and remarkable short-sightedness of the Lessig-Zittrain worldview. In terms of their myopia, here’s how I put it in that recent debate with Lessig:

Lessig failed to appreciate that markets are evolutionary and dynamic, and when those markets are built upon code, the pace and nature of change becomes unrelenting and utterly unpredictable. …  a largely unfettered cyberspace has left digital denizens better off in terms of the information they can access as well as the goods and services from which they can choose. Oh, and did I mention it’s all pretty much free-of-charge? Say what you want about our cyber-existence, but you can’t argue with the price!

But there’s something else which drives their reasoning, and for lack of a softer term I will just label it what I think it really is: Elitism. At the end of the day, if we are to believe the scary tales that Zittrain and Lessig try to weave in their work we have to accept the notion that neither companies not consumers can really be trusted to make sensible decisions.  Basically, cyber-companies are only out to screw us and we’re just too stupid to realize it. Luckily for us, however, the fine folks up at Berkman know what’s best for us and, guess what, it’s not Facebook, Apple, TiVo, or Google!  These companies are apparently guilty of the heinous crime of giving consumers too much of what they want, and we can’t allow that because “it takes a lot of dissatisfaction for us to move.”  Or as Jonathan noted in an earlier essay:

I think we can get locked into these platforms as we (rightly, unfortunately) fear the wildness of the open Internet and general purpose PC, and as we shift and accumulate more and more of our data and relationships there. After the markets coalesce to these tamer gated communities, governments can later come along and insist that these platforms be tuned towards surveillance and control far more successfully than the wilder Internet that preceded them.

In other words, we’re lazy fools. Or perhaps maybe — just maybe — we’re reasonably happy with the choices we have been given and don’t have a good reason to flee some of our current favorite providers. My God, could it be that markets work!  No, no, no, Zittrain tells us, for these “tamer gated communities” (tamer than what?) have lulled us into a sleep as they concoct a plan to “tame” the Net, quash software innovation, and then invite the government in to take all our info or property.

So, we’re right back at Lessig’s AOL horror story from 1999, except now it’s Facebook, Apple, and Google staring in the role of our corporate captors — again, even though they offer us constantly improving services and constantly falling prices (and are completely free of charge in the case of Facebook and Google).  Regardless, the fear of lock-in and what Lessig and Zittrain refer to as the “regulability” of some of these services and platforms, leads them to argue that something ominous lurks around every cyber-corner.  Consequently, just as Lessig counseled a fair degree of government oversight and intervention back in ’99 to deal with the AOL era (non-)problem of walled gardens, a decade later, Zittrain is ready to call in the code cops to correct for our foolish allegiances to the latest crop of popular software providers or media platforms:

If the market settles into a handful of gated cloud communities whose proprietors control the availability of new code, the time may come to ensure that their platforms do not discriminate. Such a demand could take many forms, from an outright regulatory requirement to a more subtle set of incentives — tax breaks or liability relief — that nudge companies to maintain the kind of openness that earlier allowed them a level playing field on which they could lure users from competing, mighty incumbents. We’ve only just begun to measure this problem, even as we fly directly into the cloud. That’s not a reason to turn around. But we must make sure the cloud does not hinder the creation of revolutionary software that, like the Web itself, can seem esoteric at first but utterly necessary later.

Sorry, but where is the evidence warranting this sort of techno-pessimism?  I just can’t buy into the story that Zittrain spins: That some folks in the cloud are currently “hinder[ing] the creation of revolutionary software” or that one day soon we’ll all wake up and find our digital lives and property completely controlled by cloud-based companies and we will be utterly without recourse.  Honestly, is Google locking you down? Did someone make you sign up for all their free services? Any reason you can’t use a second e-mail service or a different search provider?  Likewise, did Steve Jobs force you to buy an iPod or an iPhone?  I would think we should be celebrating the fact that in just one year’s time there has been 1.5 Billion downloads of over 65,000 free and paid apps by consumers in 77 countries.  I call that progress — and I don’t even own an iPhone!  Again, nothing is stopping consumers from exercising their right to choose from many other products besides Apple, Google, and Facebook, just as I have.

Now, do companies make mistakes? Of course they do. All the time, in fact. Amazon’s bone-headed book deletion this week is the latest exhibit. But people learn from these things. And companies do as well. Things evolve. Companies correct their mistakes or people bolt. AOL lost 20 million paying customers and billions in market share in the span of just a few years. Time Warner is still cursing the day they made that deal and has now spun it off entirely. Last time I checked, the old AOL model wasn’t a favorite among most web vendors. Moreover, does anyone really think there’s a future for Amazon if they make it a habit of deleting digital books on people’s Kindles?  Frankly, if you want more competition in the digital book market, you should be inviting Amazon to play such silly reindeer games. It would be the best incentive ever for people to switch! But the fact remains, that’s the exception to the rule. Locking down customers or playing games with their digital goodies isn’t a viable long-term business model that I see many firms adopting these days. And if they do, they are screwing themselves.

This same principle applies to Facebook and the fear that they will hold onto customers or their data.  When they get too heavy-handed, people respond. Does anyone remember the Beacon incident or the flare-up of Facebook’s changing Terms of Service?  People got pissed, and the company listened. That’s a healthy sign that consumers have real power in the social networking market.  Moreover, how hard is it to escape from Facebook Land? It’s not a maximum security data prison. I went there for all of about a day, found it wasn’t for me, and then deleted everything and set up camp over at LinkedIn instead.  (Yes, that’s right, I do NOT have a Facebook account.  Somehow the sky hasn’t fallen on me.  People still find me just fine.)

So what about those solutions that Zittrain recommends for these new non-problems? In Future of the Net, he was surprisingly short on specific solutions. But in today’s NYT editorial he gets a bit more concrete with that suggestion “the time may come to ensure that their platforms do not discriminate,” possibly through regulation or other Sunstein-ian “nudges.” Here we have the truly frightening prospect of a handful of faceless bureaucrats becoming Facebook’s overlords.  I’m not even sure what it means to have the government “ensure they do not discriminate,” but I really don’t want to find out.  For Google it’s a lot easier to figure out what Zittrain’s medicine will taste like: Can you say “Right of Reply Mandates & a Fairness Doctrine for the Internet?”  Frank Pasquale and Oren Bracha can and they’ve already sketched the blueprint for what a new Federal Search Commission might look like to address “search bias.” [See Berin’s critique here. ]  And for Apple, non-discrimination at the device level would take the form of forced commoditization of the iPhone.  They’d be required to give it to any carrier that wanted it on government-approved terms and the iPhone Store would be regulated like grain elevator and subjected to common carrier rules.  You know, because that model worked soooo well in other contexts.  And then, just for good measure, we would layer on a bunch of restrictions on all these companies in the form of online advertising regulations.  We can’t have the mindless sheep of the Internet being subjected to more targeted ads, after all!   To be clear, Zittrain hasn’t recommended these specific regulatory remedies yet, but this is where his logic is taking us. The old regulatory playbook will become the new regulatory playbook.

OK, now that I have been so snarky and dismissive of most of what Jonathan says in his editorial today and in his book, let me close by noting where I (partially) agree with him and Lessig. Are some digital technologies “regulable” such that our government could coerce them to divulge data or personal information?  Yes, this is true.  But here’s how I addressed that concern in my recent Cato Unbound debate with Lessig:

[cyber-libertarians] are in league with Lessig [and Zittrain] when it comes to the forcible surrender of personal information or technological capabilities to government officials. When the Department of Justice comes knocking on Google’s door asking for records of our search histories to see who’s looking for online porn (or anything else), that’s a problem. The “deputization of the middleman” has long been a legitimate fear because, with the threat of liability hanging over their necks, online intermediaries could be coerced into giving the state information that leads to fines, imprisonment, censorship, or some other type of government harassment. However, this is a problem we should handle by putting more constraints on our government(s), not by imposing more regulations on code or coders. While, as a general principle, I think it wise for companies to minimize the amount of data they collect about consumers or websurfers, we need not force that by law. And we should certainly hold companies to high standards when it comes to data security and breach. But, again, the way to deal with the “regulability” threat that Lessig and Zittrain raise is to tightly limit the powers of government to access private information through intermediaries in the first place. Most obviously, we could start by tightening up the Electronic Communications Privacy Act and other laws that limit government data access. More subtly, we must continue to defend Section 230 of the Communications Decency Act, which shields intermediaries from liability for information posted or published by users of their systems, because (among many things) such liability would make online intermediaries more susceptible to the kind of back-room coercion that concerns Lessig. If we’re going to be legislating about the Internet, we need more laws like that, not those of the “middleman deputization” model.

But that is the extent of my agreement with Lessig and Zittrain. All this techno-pessimism emanating out of Berkman and their books is largely unwarranted.  I suppose one could argue that they are just sounding alarms in the hope of preemptively checking bone-headed corporate moves, but the problem is that they increasingly back up their pessimism with large doses of heavy-handed political prescriptions to keep the Net “healthy.”  Instead, they’ll just poison the wonderfully free waters of cyberspace with the same regulatory nonsense that has strangled traditional media markets for decades. And unless your idea of cyber-nirvana resembles the broadcast marketplace, you have to think that won’t benefit consumers one bit.

Signed,

An Unrepentant Techno-Optimist

I’ve been blathering on about this week’s big Supreme Court decision in FCC v. Fox, [See Parts 1, 2, 3, 4, 5], so I thought I would just wrap this series of essays up with a collection of other articles and views on the decision in case readers are looking for alternative perspectives:

Mainstream Media Stories

• Associated Press
• Reuters
• New York Times (+ more analysis)
• Washington Post
• Wall Street Journal
• Legal Times
• TV Week
• Variety
• Kansas City Star
• USA Today
• Ars Technica

Conservative, Religious, & “Family” Groups

• Parents Television Council
• Common Sense Media
• Concerned Women for America
• Town Hall.com

Free Speech Advocates or Other Views

• The SCOTUS Blog
• Free Expression Policy Project (Marjorie Heins)
• ACLU
• Media Access Project (Andy Schwartzman)
• Center for Creative Voices in Media (Jonathan Rintels)
• First Amendment Center (David Hudson)
• Free State Foundation (Randy May)
• Michael Dorf
• Marc Randazza
• Reason’s Hit and Run
• Volokh Conspiracy (Eugene Volokh)
• TechDirt

Speaking of socializing media, acting FCC Chairman Michael Copps is someone who has devoted much of his life to regulating the media marketplace into the ground. If he had his way, federal bureaucrats would be controlling virtually every aspect of the media universe. Nothing would get done with Big Nanny’s permission.

That’s what makes his recent comments about the impact of media regulation so delicious.. and hypocritical.  According to an article  Bloomberg ran on Thursday, Copps is now saying that, with newspapers struggling to remain afloat, the FCC should now reconsider regulations that prohibit combined ownership of broadcast stations and newspapers.  The agency should “visit this whole problem” before long, Copps apparently told Bloomberg.

“Visit this problem before long”??  Please!  Congress and the FCC have had opportunities to “visit” and revisit this problem for many years now, but it has been Michael Copps and his merry band of media reformistas who have stopped every reform effort dead in its tracks.  (See my essays “Congress Fiddles, Newspapers Burn” and “Media Deregulation is Dead” for more evidence of how these radicals hijacked media policy in this country.)  As I documented in my 2005 Media Myths book, these charlatans have used hyperbolic rhetoric, shameless fear-mongering, and unsubstantiated claims in opposition to each and every sensible effort to reform our nation’s outdated media ownership policies.  Those laws and regulations have created artificial market structures and hindered the ability of media operators to find new business models that might throw them a lifeline in difficult times.

Consider the fact that it was just 14 months ago that then-Commissioner Copps issued this gem of a hysteria-ridden statement in response to the agency’s last effort to ever-so-slightly loosen the newspaper-broadcast cross ownership rule:

Today’s decision would make George Orwell proud. We claim to be giving the news industry a shot in the arm—but the real effect is to reduce total newsgathering. We shed crocodile tears for the financial plight of newspapers—yet the truth is that newspaper profits are about double the S&P 500 average.

I remember when I read that back in Dec ’07 and thinking to myself that Michael Copps is either willfully blind to the facts or intentionally twisting them to suit his own ends.  Regardless, the writing was on the wall years ago with the rise of unprecedented information abundance and media competition and there was no good reason to force traditional media operators to face these new challenges with one arm tied behind their backs.  But that’s exactly what Copps and his radical cronies over at Free Press and other groups did.

But now Copps is suddenly having second thoughts?  Now that he has dug their graves and driven stakes through their hearts, he suddenly wants to cast himself as an Information Age Jesus and resurrect Lazarus?  Oh, the hypocrisy of it all!  As my boss Ken Ferree recently pointed out:

They’ve all now suddenly discovered that the business model for daily newspapers is under strain and may not be sustainable? Was it the New York Times slouching toward bankruptcy that got their attention, or the failure of the Seattle Post-Intelligencer? […] The sad truth is, the newspaper business has been heading toward a cliff for the last ten years; only willful ignorance can explain the failure of these people who have so recently come to be concerned about the fate of journalism to acknowledge the threat. Time will tell whether their new-found concern has come too late, or whether they have poisoned the political well too thoroughly for any effective policy change.

Moreover, as Ken also points out, it’s not just Copps who has apparently seen the light and had a sudden conversion.

This follows a letter from Speaker Pelosi to Attorney General Holder suggesting restrained antitrust review of transactions involving newspaper assets, and a proposal from Senator Cardin (D-MD) for a quasi-government bailout of newspaper firms.

Ken has more commentary on the Pelosi letter here.   Like Ken, when reading these comments from Pelosi and Copps, I don’t know whether to laugh or cry.  I suppose I should be happy that they have finally seen the error in their ways.  It’s just a shame it took such devistation for them to open their eyes to the truth.  Regulatory reform might not have been able to save these old media operators, but they should have at least been giving the freedom to structure their affairs and restructure their business models in an attempt to avoid extinction.  Copps and Pelosi now have to live with the grim reality that it’s tough to throw someone a lifeline after you’ve already sank the ship.

Ben Edelman of the Harvard Business School has just released an interesting new study in the Journal of Economic Perspectives entitled, “Red Light States: Who Buys Online Adult Entertainment?”  Using data he obtained from a top-10 seller of adult entertainment, Edelman examined adult website subscriptions on the zip code level and found that conservatives seem to be every bit as interested in pornography as liberals. In fact, “Subscriptions [to adult entertainment sites] are slightly more prevalent in states that have enacted conservative legislation on sexuality” and “subscriptions are also more prevalent in states where surveys indicate conservative positions on religion, gender roles, and sexuality.”  He also finds that:

In states where more people agree that “Even today miracles are performed by the power of God” and “I never doubt the existence of God,” there are more subscriptions to this service.  Subscriptions are also more prevalent in states where more people agree that “I have old-fashioned values about family and marriage” and “AIDS might be God’s punishment for immoral sexual behavior.”

On the whole, these adult entertainment subscription patterns show a remarkable consistency: all but eleven states have between two and three subscribers to this service per thousand broadband households, and all but four have between 1.5 and 3.5. With interest in online adult entertainment relatively constant across regions, there’s little sign of a major divide.

But it’s not just Internet porn where we see this trend at work.  As I noted in my law review article, “Why Regulate Broadcasting?” we’ve seen a similar trend at work with television. When you look at some of the TV shows that conservatives and religious groups gripe most about, you might be surprised to know that it is conservatives who make those shows as popular as they are!

As Bill Carter of the New York Times reported in a 2004 article, “Many Who Voted for ‘Values’ Still Like Their Television Sin,” Nielsen ratings data shows that in many Republican-leaning “red state” markets, such programs garner higher ratings than in many Democratic-leaning “blue states.” For example, in the counties that constitute the greater Atlanta television market, ABC’s dramatic comedy “Desperate Housewives” was the top-rated show even though nearly 58 percent of voters in those counties voted for President Bush.  Similarly, in the traditionally conservative Salt Lake City market, where President Bush captured over 72 percent of the vote, the top four shows were “C.S.I.,” “C.S.I. Miami,” “E.R.,” and “Desperate Housewives.”

Likewise, in a 2004 column about “The Great Indecency Hoax,”  NY Times columnist Frank Rich noted that the same trend holds in conservative Oklahoma City, where “Desperate Housewives” is more popular than it is in Los Angeles, as well as Kansas City where the show is bigger than it is in New York City.  Rich quoted sociologist Herbert Gans who explained the phenomenon as follows: “For some people it’s a case of ‘I am moral therefore I can watch the most immoral show.'”

Such findings call into question the logic of traditional “community standards”-based regulatory efforts. Indeed, it is unclear how lawmakers can determine the relevant “community standard” for purposes of speech and content regulation when some of the most conservative communities in America are downloading as much porn as Edelman’s study finds, or when conservatives are watching smutty TV in greater numbers than liberals do.

The better approach, as I’ve argued here before, is to replace “community standards” with “household standards.”  That is, it would be optimal if public policy decisions regarding content took into account the extraordinary diversity of citizen / household tastes and left the ultimate decision about acceptable programming to them.  That’s especially the case in light of the fact that less than 32% of U.S. households have any children in them, and those homes that do have children have plenty of tools and methods at their disposal to control objectionable content. Let’s empower parents to make decisions for themselves and their families so that Uncle Sam doesn’t need to play the role of national nanny for all of us.

• Edelman’s mention of porn consumption in Utah reminded me of this passage from Jeff Rosen’s 2004 essay on “The End of Obscenity” (which I discussed in greater detail here):

  three years ago, when a local video retailer in Utah was prosecuted for peddling hard-core pornography, he successfully argued that his products were consistent with what his neighbors were watching on pay-per-view: in an age of nationally distributed hotel pornography, there was little difference between the consumption habits of hotel guests in Salt Lake City or Las Vegas. Pornography is everywhere, suggesting that there is no national consensus against it and no vast disparity from one locale to another.

  Seems that those Utah residents are a horny bunch!  Maybe their new motto should be, “What happens in Utah, stays in Utah.”

There’s been plenty written about the death spiral that America’s newspaper industry finds itself stuck in — here’s an amazing summary of the recent online debates — and I’ve spent a lot of time writing on this issue here in the past, too.  Ben Compaine, one of America’s sharpest media analysts and the co-author of the classic study Who Owns the Media?, has added his own two cents in his latest essay over at the Rebuilding Media blog. Like everything Ben writes, it is well worth reading:

If newspapers have essentially been able to thrive on the revenue from advertisers alone (again, with cost of printing more or less covered by circulation revenue), why are they having so much trouble today? The answer is not one single factor, but a major contributor is that newspapers – whether print or digital—are just worth less to advertisers than they were 20 years ago. Back then, local advertisers did not have many options for reaching the mass local audience. What was the alternative for auto dealers? For real estate agents? Supermarkets or department stores? For some, direct mail was one possible option. But that was about it. Using pre-prints instead of ROP became attractive for some large display advertisers, leaving the publishers with a piece of the cash flow. Advertisers were hit with regular rate increases. And they pretty much had to pay, The publishers made good money. But then a double whammy. Just about the time the Internet became a real alternative for classified listings—think Craigslist, Monster.com, eBay, Autotrader.com—and for retailers—think DoubleClick, Google, et al—the boys at the cable operators had perfected the insertion of highly local spots into their feeds. Between 1989 and 2007 local cable advertising increased from $500 million to $4.3 billion—or from 0.4% of all advertising to 1.6%. Advertising in newspapers fell from 26% to 15% in this period. Although some of the highly local advertisers going to cable may have taken some of their funds from budgets for radio or other local media, it is probable that a significant share came from the hides of newspapers. I estimate perhaps up to 20% of the decline in local newspaper advertising share can be attributed to local cable spots. The other whammy, the gorilla in the room, is Internet advertising. No need to elaborate. But its impact on newspapers is not just that it has siphoned off dollars per se. Much more importantly is that the Internet has given most advertisers greater market power against newspaper publishers. Many big advertisers—like car dealers, real estate offices and big box retailers—don’t need the newspapers as much.

Ben’s got it exactly right. The decline of newspapers comes down to the death of  “protectable scarcity” (thanks to Canadian media expert Ken Goldstein for that phrase).  There’s just too much other competition out there online already for our eyes and ears.  We’re witnessing substitution effects on a scale never seen in the media world, with disruptive digital technologies and networks splintering our attention spans.  That de-massification of media means that high fixed cost endeavors like daily newspapers are not going to be able to sustain the cross-subsidies they’ve long gotten from advertisers.

If you want to boil the newspaper death spiral down to an equation, it would look something like this:

(1) unprecedented technological change

+

(2) massive inflow of new media competitors / platforms

+

(3) end of geographic “protectable scarcity”

=

(4) inability to capture a guaranteed audience

&

(5) complete loss of advertiser / investor confidence

And the process is viciously self-reinforcing.  Again, a seemingly hopeless death spiral.  So, do papers have any hope?  Compaine considers where papers might turn next in terms of a business model:

I suspect that what we will find in the intermediate future is a mix of models and choices, among them:

• The Detroit model [Detroit Free Press and Detroit News] is one reasonable experiment: An attractive daily digital version, with home delivery of the paper reduced to Thursday, Friday and Sunday.
• An advertising supported all digital model, with the publisher closing down the printing plant, selling off its trucks, laying off the circulation and production departments.
• A voluntary pay model. This may take one of several forms. The “shareware” model for software has proven to work to a point. Users are asked to pay what they can or think the product is worth. Many users will be free riders. But, as we see with public television and radio, millions in their audience make annual contributions. (In 2007 at least one-third of those who downloaded Radiohead’s free “In Rainbow” album made a payment, in some cases higher than what the band would have received from a CD sale.)

The problem with that last model is that it might help some papers remain afloat, but it is highly unlikely such a model could sustain the industry as we know it today.  There’s a reason, after all, that NPR doesn’t have a lot of competitors in the non-profit radio world; only so many benefactors — whether corporate, foundations, or individuals — are willing to spread around their donations when it comes to news.  A non-profit model or charity-based model might work for a couple of big-dog dailies with generous sugar daddies — think the New York Times and Carlos Slim — but that model won’t work for most other papers.

As Ben suggests, the best hope likely lies in some combination of all of the above, with a particular focus on finding a way to monetize the all-digital model (model #2) as quickly and effectively as possible.  But some papers are late to that game, and even those that moved aggressively to get everything online have found that the economics are still challenging in a crowded field.  The advertising cross-subsidy they lost is in the old world has already been captured online by many others. There’s just less ad $$$ to go around with so many other outlets presenting more targeted and affordable platforms than what old newspapers offer.

Regardless, I think it’s time to accept the uncomfortable reality that the newspaper industry as we know it is dead and will never return.  As an old newspaper fanatic and journalism student, this makes me a bit sad.  I still get two dailies on my doorstep every morning and will certainly miss them when they pass from this Earth.  Of course, a lot of that news will be repurposed online. And other news sources and outlets are still out there or will develop in response.  But challenging issues remain about how “long form” investigative journalism gets funded going foward. I don’t believe in the pollyanish fantasies about a world of user-generated content and “We-dia” giving us all the important news of the day.  You can’t reassemble the New York Times one Twitter at a time.

What would it take to create a more secure Internet?  That’s what John Markoff explores in his latest New York Times article, “Do We Need a New Internet?”  Echoing some of the same fears Jonathan Zittrain articulates in his new book The Future of the Internet, Markoff wonders if online viruses and other forms of malware have gotten so out-of-control that extreme measures may be necessary to save the Net.  Compared to when cyber-security attacks first started growing over 20 years ago, Markoff argues that:

[T]hings have gotten much, much worse. Bad enough that there is a growing belief among engineers and security experts that Internet security and privacy have become so maddeningly elusive that the only way to fix the problem is to start over.

Like many others, Markoff fingers anonymity as one potential culprit:

The Internet’s current design virtually guarantees anonymity to its users. (As a New Yorker cartoon noted some years ago, “On the Internet, nobody knows that you’re a dog.”) But that anonymity is now the most vexing challenge for law enforcement. An Internet attacker can route a connection through many countries to hide his location, which may be from an account in an Internet cafe purchased with a stolen credit card. “As soon as you start dealing with the public Internet, the whole notion of trust becomes a quagmire,” said Stefan Savage, an expert on computer security at the University of California, San Diego.

Consequently, Markoff suggests that:

A more secure network is one that would almost certainly offer less anonymity and privacy. That is likely to be the great tradeoff for the designers of the next Internet. One idea, for example, would be to require the equivalent of drivers’ licenses to permit someone to connect to a public computer network. But that runs against the deeply held libertarian ethos of the Internet.

Indeed, not only does it run counter to the ethos of the Net, but as Markoff rightly notes, “Proving identity is likely to remain remarkably difficult in a world where it is trivial to take over someone’s computer from half a world away and operate it as your own. As long as that remains true, building a completely trustable system will remain virtually impossible.”  I’ve spent a lot of time writing about that fact here and won’t belabor the point other than to say that efforts to eliminate anonymity for the entire Internet would prove extraordinarily intrusive and destructive — of both the Internet’s current architecture and the rights of its users.  There’s just something about a “show-us-you-papers,” national ID card-esque system of online identification that creeps most of us out. That’s why I spend so much time fighting age verification mandates for social networking sites and other websites; it’s the first step down a very dangerous road.

But what if we could apply such solutions in a narrower sense?  That is, could we create more secure communities within the overarching Internet superstructure that might provide greater security?  Markoff starts thinking along those lines when he suggests…

What a new Internet might look like is still widely debated, but one alternative would, in effect, create a “gated community” where users would give up their anonymity and certain freedoms in return for safety.

… but he is still thinking in terms of a replacement model for the entire Internet, which would be misguided for the reasons I stated above.  We don’t want to force a single, intrusive, anonymity-killing replacement model on the entire online universe.  Starting over isn’t even possible in a practical sense.

It’s a shame that Markoff didn’t interview my old colleague Wayne Crews for his story because Wayne has outlined an alternative framework worth considering. For many years, Wayne has been preaching about “spinternets,” or the notion that we need to start thinking about how develop not just one better Internet, but many better Internets. In a visionary piece for Forbes back in early 2001, Wayne argued that the solution to the growth of various online concerns “is more Internets, not more regulations”:

The Internet needs borders beyond which users can escape damaging political resolutions of these battles, which are rooted in the Internet’s nonowned, common-property status. Conflicting legislative visions in a cyberspace populated by exhibitionists at one extreme and would-be inhabitants of gated communities on the other, reveal the basic truth that not everybody wants or needs to be connected to everybody else.

Again, there’s that notion of “gated communities” that Markoff brought up. It’s not for everybody, but those seeking greater security could perhaps find it inside such online communities. Of course, others who wanted a different experience could start a completely different gated community under Wayne’s model.

But the problem with this notion, quite obviously, is that very few people want to stay inside their gated communities all the time. In the physical world of gated communities, for example, members of it still like to get out of there once and awhile to visit shops, events, parks, friends and family, etc.  The same goes for the Internet.  Just ask all those former denizens of AOL’s gated community.  For awhile, many of them — over 25 million strong at the zenith of its popularity — were content to spend most of their digital day inside the walls of Case’s Castle.  Gradually, however, they felt the need to explore outside those walls.  And so they did.  A mass exodus ensued and the walls came crumbling down around AOL’s gated community.

But that doesn’t necessarily mean the idea of online gated communities is entirely dead. There are certainly many closed, tightly-controlled networks out there already — mostly in corporate or government environments — that offer a glimpse of how such a model might work in practice.  Also, smaller social networking sites aimed at kids provide another example since they are usually tightly-controlled walled gardens that offer much greater security.

But Wayne was always thinking of something bigger — much bigger — than just closed corporate / government networks. He was thinking about a world of many different Internet s that didn’t necessarily have a back door to the broader Internet. Think of it as many parallel, but unconnected digital systems and networks, each serving a different set of values and cultures with unique rules.

Wayne envisioned the primary critique of this model in his original piece, noting that “it will be criticized as Balkanization.”  Indeed, Sonia Arrison called it “techno-isolationism, which goes against the very spirit that makes the Internet great.”  Indeed, it certainly would destroy something very precious about the current Internet — universal connectivity and openness.  But that’s sort of the point, isn’t it!  Universal connectivity and openness have given us many wonderful things, but some troubling things, too.  That’s what Markoff was getting at in his NYT piece, and it’s part of what Wayne was aiming to address with his splinternets idea.

But do we really want to encourage a world of multiple Internets where, presumably, they are split right down to the root? In other words, there wouldn’t be a common language for networks to communicate or a way to access many sites and services outside the particular Net you are on at any given time. It would be the equivalent of living on different digital planets that never linked or communicated.

I think it’s unlikely we’ll ever get there, and if we did it would likely be driven by global governments challenging ICANN and existing Internet governance structures. In other words, the DNS root would be completely split by some countries (China?) who didn’t want to play by the same rules as the rest of the interconnected world, or who wanted to try to impose a different vision upon a new, competing global network.

But might there be a way to find a happy middle ground between the Wild West commons of the current Net and the “techno-isolationism” of Wayne’s splinternet model?  Perhaps “Splinternet-lite” is the solution.  Within the confines of the existing Internet superstructure, there are ways to create walled gardens today and limit the number of back doors to the broader Net.  Again, the smaller social networking sites and virtual worlds aimed at kids already do that. Once you’re in there, you’re in a very different world. You have to be fully verified before you’re even let in the door, and once you’re inside their are tight limits on what you say, do, and explore. And you’ll get booted out pretty quickly if you break the rules.  The result is greater safety and peace-of-mind for kids and parents alike. It’s a less clear, however, how that model would “scale up” and apply to the entire universe of online networks.  I think we’ll have to be content with small patches of security within a world of insecurity. That’s the cost of the openness and interconnectivity that the Net current gives us.

In sum, there is no clear answer to John Markoff’s question, “Do we need a new Internet?”  We certainly could do more to address the problems with the current Net, but upending it and starting over isn’t likely an option.  More micro-splinternets within the overarching Net superstructure, however, might help those who are particularly risk-conscious find safe haven from various cyber-security fears. But it won’t shelter them from those problems completely.