March 2006

The Broadband Buffet

by on March 17, 2006

Felix Salmon links approvingly to my op-ed yesterday, but he takes exception to my claim that using your neighbor’s bandwidth as a permanent Internet connection is borderline theft of service:

Well, is it theft of service or isn’t it? And who’s being stolen from here, Lee or the ISP? Would Lee slap on that password because he feels a debt of gratitude to his ISP for its service, and hopes that maybe the price will come down if his “unscrupulous neighbor” pays a monthly charge as well?

The answer is that you’re stealing from the ISP. Think of an all-you-can-eat buffet: they charge you $7 for all the food you can eat because they make reasonable assumptions about how much the typical person eats. Some particularly large people eat mor than $7 worth of food, but the average customer eats less than $7 worth of food, and so the buffet is able to make money.

If you take your table scraps home to your dog, the buffet probably doesn’t care. The amount of food involved is trivial, and you wouldn’t have brought the dog in anyway. But if you shovel a bunch of food into a tupperware container to share with your friends, that’s not kosher because you’re breaking the terms of the “all you can eat” agreement.

By the same token, the broadband provider provides you with an “all you can download” service for you and the members of your household. The viability of this arrangement depends on people not “cheating” by sharing the service with neighboring households. Sharing your wireless connection is analogous to sneaking food out of the all-you-can-eat buffet. Sure you could have consumed all of that bandwidth yourself, but the fact is that you wouldn’t have. The flat-rate pricing model only works because most customers pay for their own connections.

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Sony Flinches

by on March 16, 2006

Ars reports that Sony has opted not to cripple its next-generation video products for customers with analog TV sets:

The Image Constraint Token is part of the AACS (Advanced Access Content System) used in both next-generation optical formats. A couple of months ago, we reported that ICT would be used in both Blu-ray and HD DVD to downsample video from its 1920×1080 glory to a relatively crufty 960×540 if the player detected that it was hooked up to an analog HD display or any other display lacking an HDMI input. We also noted that use of ICT would be left up to the individual studios, rather than being made a mandatory part of the AACS spec.

Sony is the first studio to lay out its plans for how owners of older, analog-only HD sets would be able to watch Blu-ray content. According to Sony Pictures Home Entertainment Senior VP Don Eklund, none of Sony’s Blu-ray releases for the “foreseeable future” will use ICT to force downsampling. “We have no plan to implement the Image Constraint Token. All of Sony’s titles will come out of the analog output at full definition”

Eklund noted that while Sony is obviously concerned about piracy, it sees analog signals as a relatively small concern. Instead, Sony is banking on the AACS to keep the digital signal from being “intercepted” and preventing HD copies of its movies from turning up on Torrent sites and Usenet.

This was a sensible move on Sony’s part. Let’s hope the other studios come to their senses as well.

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The End of Innovation?

by on March 16, 2006 · 6 comments

From IBM, the company that (allegedly) once told us there’s a world market for five computers, we now learn that the era of the “next big thing” is over:

“The fact is that innovation was a little different in the 20th century. It’s not easy (now) to come up with greater and different things,” Donofrio said.

“If you’re looking for the next big thing, stop looking. There’s no such thing as the next big thing,” he added.

That is not to say that the 21st century does not also require invention, creation and discovery, he said. But these days, people are looking for value that arises from a creation and not just looking at technology for its sake, he explained.

I don’t understand what the point of making statements like that. By definition, innovation consists of developing or discovering things that people previously didn’t know about. So the fact that Mr. Donofrio can’t think of any inventions simply means that the present era is exactly like all previous eras.

Here’s my prediction: we’re going to see several revolutionary technologies invented in the next 50 years. We don’t know what they are today, but they’ll seem obvious in hindsight.

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The FCC’s Indecency Bomb: Why it Might Be the Beginning of the End of All Broadcast Content Regulation

by on March 16, 2006

The FCC dropped a bombshell yesterday when it handed down a set of record-setting fines for supposed violations of its broadcast indecency rules. CBS alone faces over $3.6 million in fines for a single episode of “Without a Trace.” A NBC-owned Spanish-language station faces a big fine as does two other Spanish-language shows. And CBS got nailed again for the infamous Janet Jackson Super Bowl incident. And there were several other fines handed down. Regardless of what you think about the fines, the FCC’s actions yesterday will almost certainly be the start of a major court battle that could result in a historic First Amendment decision when all is said and done.

Modern Indecency Law: About As Clear As Mud

Broadcasters will have a strong case when they get the rules in court. The FCC has steadily increased the scope of its indecency enforcement policy over the past 15 years and created a regulatory regime that is about as clear as mud. The vagueness of the FCC’s indecency regime is clearly on display in the new decision. For example, the agency throws the book at a noncommercial educational station for broadcasting a Martin Scorcese-produced blues documentary with a few F-bombs in it, but then they give Oprah a free pass for a show about the “secret lives of teenagers” that including a detailed discussion of “oral anal sex.” In other words, if a few blues musicians use some salty language during a documentary at 9:30 at night (when most kids are already in bed), the station gets a fine. But if Oprah wants to have an explicit discussion about teenagers’ filthiest sex habits at 4:00 in the afternoon (right when kids are getting home from school), well then the FCC says by all means go right ahead! Does that make any sense?

This epitomizes how convoluted and arbitrary modern indecency law has become. If you want to know how confusing things have gotten over the last few years, consider these examples:

Continue reading →

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“Parisitic” Technologies

by on March 16, 2006

Tom Giovanetti at the Institute for Policy Innovation has a good critique of the Stan Liebowitz paper on “parasitic technologies”:

The author, Stan Liebowitz, with whom I also frequently agree, characterizes a technology that allows consumers to avoid or skip commercials as a parasitic technology that destroys property rights. He also compares technology that allows one to avoid commercials to technology that allows one to steal intellectual property, like file-sharing software in the mode of Grokster.

I find the comparison astonishing, and the distinction between so-called “parasitic” and “productive” technologies arrogant.

It is not theft to avoid a commercial. If I mute the sound during a commercial, or leave the room during a commercial, what have I stolen? Absolutely nothing. Only if you assume that an advertiser has a property right to a consumer does that logic hold.

When I watch a TV show, I’m under no legal or moral obligation to watch the TV commercials that come along with them. Certainly, the TV studio hopes I will do so, and they sell a lot of advertising based on the fact that many consumers do. But the mere fact that a companies base their business plans around the assumption that I’ll watch their commercials doesn’t obligate me to do so.

This is particularly true given that the Internet is on the verge of making all sorts of new business models viable. Even if we assume that TiVo will destroy the broadcast TV model (which seems unlikely) the networks can still sell their shows directly to consumers via the Internet. Or they might come up with more sophisticated advertising strategies, such as placing text ads alongside videos, or embedding advertising within the video. The video game industry has been particularly innovative on this score, embedding advertising within the game environment itself.

Surviving in a post-TiVo world may require some ingenuity on the part of Hollywood, but that hardly makes TiVo a parasite.

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Promote Thyself

by on March 16, 2006 · 4 comments

I’ve got an op-ed in the New York Times today that expands on my post last week on wireless “piggybacking.”

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ISP Liability in England (oh yeah, and Wales too)

by on March 14, 2006

Michael Geist notes the recent decision in Bunt v. Tilley, a case in the High Court of Justice, Queen’s Bench Division. The plaintiffs in the case argued for holding ISPs liable when their services are used in defamation. Happily, they lost.

There is an argument that ISPs represent the most efficient source at which to control all kinds of bad acts, including gambling, defamation, copyright violation, propagation of viruses, and so on. As I argued in my Regulation paper “Against ISP Liability,” though, efficiency is not the highest goal of legal rules.

Supposedly efficient ISP liability would be devastating to the Internet. I quote me:

Consider the Internet access market and the viability of the network effect if ISPs were liable for copyright violation, obscenity, and defamatory statements put out by their clients. Looking at potentially massive payouts, ISPs would screen content thoroughly, charging clients substantially higher sums for the service. They would restrict their clientele to established media companies and sophisticated, wealthy parties who could
indemnify them.

Under such a regime, the Internet might be about where digital cable systems are, with lots of downstream content and very little opportunity for interactivity, much less individual publishing. The robust, democratized, one-to-all medium we have today . . . was not a foregone conclusion in its early years.

So I approve of the result in Bunt v. Tilley, though there are flaws. Geist points out a suggestion in the case that notice to an ISP of defamatory content might be enough to create liability. But I hope that future cases will dispel that notion.

I like to think that what is happening here is what would have happened in the U.S. in the absence of the Communications Decency Act, which preemptively did away with ISP liability. Me I quote approvingly again:

Had common law processes been left to determine ISPs’ liability, a variety of courts would have weighed the competing interests through strings of real-world decisions over several years. As likely as not, they would have concluded that ISPs have no duty to protect the world from their clients.

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Crawford’s substrate neutrality

by on March 13, 2006 · 5 comments

Susan Crawford on net neutrality: “When [telcos and cablecos] say ‘internet’ they mean infrastructure. They mean substrate. They say they built the substrate and now own it. … But when users say ‘internet’ they mean relationships. We forget, because so many machines are involved, that the internet is a social world. Users don’t think about transport–they’re indifferent to the substrate. They care about what they do there. And what they do is create a complex adaptive system unlike any other communications network we’ve ever had before. The unpredictable ecology of the internet could never have been generated by a broadcaster or a newspaper. It’s constantly revising itself in response to the feedback it’s getting from everyone. And its value is almost wholly unrelated to the work carried out by the access valves, the gatekeepers to internet access.” She goes on to liken the current debate over ownership of networks to debates over intellectual property.

This clever distinction of “internets”–a physical on and a social one–articulates the reason why I think that net neutrality in the abstract is a good thing. That is, because I like the unpredictable and innovative results of a neutral net. However, what we have to keep in mind is that the laws being proposed to deal with net neutrality affect the first internet–the physical one that is owned property. Physical property is unlike intellectual property. Intellectual property is a temporary monopoly that exists only to give incentive to develop the store of human knowledge. This is why we can justify limiting intellectual property rights through compulsory licenses or fair use. In contrast, physical property is absolute; there is no fair use of my automobile without my permission–even if your need is great, you are a non-profit, and the result of your use will create great value. Therefore, unlike the case with IP, in the net neutrality debate we cannot simply conduct a balancing test and, if limiting an owners’ property right achieves greater social welfare, then be justified in limiting those physical property rights.

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Will the House Regulate the Internet? Commerce Committee Considers Net Neutrality

by on March 10, 2006

All eyes have been on the House Commerce Committee the past few days, as reports have floated about regarding a draft telecom reform bill being hammered out by the members. Committee chairman Joe Barton mooted two earlier proposals last year, both of which attempted to comprehensively reform telecom laws. Both–especially the first–were stillborn–because of complaints that they imposed new regulation, rather than just free up this now-competitive market.

This time around, Barton has tried a more targeted approach–instead of all-inclusive reform, the legislation would be focused on eliminating local cable television franchise regulations, which have been slowing the advent of competition in cable TV. A smart move–a rifleshot reform, and one that that would significantly help consumers.

But it now looks like even this bill is being bogged down with new regulation. Although no copy of the proposed bill is yet public, reports are that the plan would keep the old regulations in place for a some time for existing cable firms, and even impose new price controls on them.

Worst of all, however, there are indications that “net neutrality” regulations may be soldered on to this bill. Such regulation–which would prohibit network owners from differentiating among different types of content–would place the FCC squarely in the business of regulating the Internet. (see here and here for more about problems with net neutrality rules).

Such provisions would turn Barton’s original deregulatory intent on its head. Rather than eliminating obsolete and unneeded regulations of telecommunications, the bill would introduce new and equally unneeded regulations on the Internet. Lawmaking may be like sausage-making, but such a result would be particularly hard to digest.

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The Economist Speaks Out Against Regulation

by on March 10, 2006

Good piece in The Economist this week on the specter of “net neutrality” regulation. The London-based magazine, which is pro-market in a British sort of way, hasn’t hesitated to support competition rules in the past (it was an avid supporter of the Microsoft prosecution). But in an editorial in this weeks issue, it warned against overly-prescriptive net rules, arguing:

An overly prescriptive set of net-neutrality rules could prove counterproductive. For a start, it would mean that all new network construction costs would have to be recouped from consumers alone, which could drive up prices or discourage investment. Ensuring “neutrality” could require regulators to interpose themselves in all kinds of agreements between network operators, content providers and consumers. If a network link is too slow to support a particular service, does that constitute a breach of neutrality? Strict rules could also hinder the development of new services that depend on being able to distinguish between different types of traffic, imposing a “one size fits all” architecture on the internet just as engineers are considering novel ways to improve its underlying design.

The piece does allow that some basic rules could be in order. Alas, one would think that a magazine based in Europe would know more than most that limited and simple regulations all too often turn into expansive and complex rules.

Still worth reading (subscription required).

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