April 2006

Saving King Kong

by on April 28, 2006

Here’s David Levine’s response to the King Kong question:

The short response is pretty simple: until they lost the VHS tape case, the only source of revenue for movies was for theatrical releases. Even if DVDs can be freely copied and given away for free, the revenue from theatrical releases can still sustain large scale productions. The key point is that it is wrong to focus on the copies to which copyright applies as the sole source of revenue to pay for creative efforts. Open source software works because the complementary good produced – “expertise” – in the process of producing software, is scarce and so commands a premium in the market. So even if copies generate little revenue, as long as something else complementary is scarce, there is still a revenue source to pay for creation. In the case of movies the obvious candidate is theatrical sales.

I don’t think this works because the scarcity of theater viewings is based on the fact that most movie theaters still rely on primitive 20th century technologies to play movies. Canisters with photographic film in them are bulky, expensive, hard to steal, and difficult to duplicate if you don’t have the master. So it’s reasonable to expect that you can protect all (or virtually all) the film copies of a movie from piracy, and thereby ensure that only authorized theaters can offer customers the big-screen experience.

But this is changing fast. As projector technologies improve and bandwidth costs fall, theaters will increasingly move to all-digital distribution technologies. A theater will download a (probably encrypted) copy of a movie from the studio and play it on a high-end LCD projector. Once that happens, the task of preventing leakage without the benefit of copyright would become all but impossible.

Here’s how I imagine the theater industry would work in a copyright-free world: There would be large chains of pirate movie theaters, who specialize in showing bootleg copies of movies. They offer large cash payments to anyone who can slip them a pristine, illicit copy of the copyrighted movie. Once they get the copy, they redistribute it to all the theaters in their chain, and begin showing the movies for free (they can make the money up on popcorn).

Now, the relevant question is how quickly the pirate theaters could get their hands on the movie? In the status quo, the peer-to-peer networks generally have copies of movies (albeit far from perfect) before the theatrical opening, leaked by studio insiders or people who went to previews. Clearly, the studios would tighten up their operations, but on the other hand there would also be a much stronger financial incentive to pirate, since the illicit copy would be so valuable. So it’s hard to predict with any precision whether leaks would become more or less common.

But the important point, I think, is that a lot of big-budget movies would leak within weeks, if not days, of their release. That would mean two things. First, the window of opportunity for charging full freight on them would be rather short. For the majority of movies, opening weekend would probably be the only weekend in which authorized theaters would have exclusivity. Secondly–and more devastatingly–consumers would know that if they waited a week or two, they would be able to see the movie for free. So even if you did have a monopoly for a week or two, you’d only get the consumers who were aching to see your particular movie. Most consumers would simply wait the extra week or two when it would be available for free.

So I don’t think I buy it. In the absence of copyright, I think it’s unlikely there would be any movies with 9-figure budgets. We can debate whether that’s a bad thing (I think it would be for reasons I hope to lay out in a future post) but I think that’s definitely what would happen.

Joe at Techdirt weighs in on our alleged need for a “Manhattan project” on alternative energy:

Charles Cooper of News.com is upset that on President Bush’s recent trip to Silicon Valley, he didn’t speak with more substance on how technology could help ease our energy problems. Specifically, Cooper would have liked to see Bush call for a new Manhattan Project, this time focusing on alternative energy. First of all, he should know that you can never get much more than rhetoric from a politician. Second, we don’t need another Manhattan Project–the market is already taking care of that. VCs are pouring record amounts into energy technology, none of which required the President’s approval. There’s even some reason to believe there’s overinvestment in new technology, which could be bad for VCs, but great for the economy on the whole. While centrally planned projects might be appropriate for military applications, a pending proposal to provide prize money for hydrogen breakthroughs is much more intriguing. As in other areas, getting people to compete for prizes and profits is a better solution than just throwing a bunch of money at them.

An even broader point is that it’s not even clear what the goal of a “Manhattan project” would be. With the original Manhattan project, we had a very clear goal: blow stuff up by splitting the atom. But it’s likely that improving energy efficiency will take a lot of small technological advances that will gradually reduce our energy consumption and/or increase our energy supply. We have lots of renewable energy sources already, the problem is that none of them are economical. So the most important constraints are economic, not scientific or technological. Those aren’t the kinds of problems you can solve by putting a lot of smart people in a room.

I think you’d have the same kind of problem with a hydrogen prize. The criteria necessary to make hydrogen technology viable are complex, and it’s not even obvious that hydrogen is going to be a viable technology in the first place. Add in the likelihood of special interest lobbying, and what you’re more likely to do is to give a whole bunch of money to some company that develops a technology that meets the specs but isn’t actually useful for anything.

And in any event, if hydrogen technology is a viable alternative to fossil fuels, there’s already a massive pot of gold called “profit” for whoever figures it out, so it’s not like there’s a need for additional incentives.

Wednesday’s Cato conference Copyright Controversies: Freedom, Property, Content Creation, and the DMCA has been posted on the Web in various formats for your viewing and listening pleasure. Interesting ideas and moments abound.

As expected, last night’s TLF happy hour was a tremendous success. Dubbed Alcohol Liberation Front, it saw the largest convergence of TLF bloggers ever in a single location. Not only that, but the event saw a record number of TLF readers attending to join in convivial, spirited conversation – not to mention a teeming crowd of TLF-oblivious revelers. Needless to say, there was plenty of noise and plenty of jostling to get to the almost-packed bar.

And it’s no wonder. What an opportunity! – to gather and talk about all the stuff that we usually write about!

I, for one, am still dizzy from the excitement generated by the event, or perhaps that’s “queasy.” No matter. I’m looking forward with intense trepidation to the next Alcohol Liberation Front event. Hearty thanks to Tim Lee for organizing and for coming up with the zinger quote of the night: “Another gin and tonic for my analog hole.”


Trust-Busting Blog

by on April 28, 2006

David Levine writes to tell me about his blog, which is on the same theme as his book: abolishing patents and copyrights. Although I wasn’t persuaded by his talk, I thought it was an interesting and provocative presentation, and I’m looking forward to reading his blog and his book more carefully to consider his arguments in more detail.

Balancing Act

by on April 27, 2006

Matthew Yglesias weighs in on my recent post concerning Levine’s talk:

Strengthening copyright protections does two things. On the one hand, it increases the incentives for creating new works because it makes it easier to make more money off of them. On the other hand, it increases the costs of creating new works because it makes it harder to pull ideas out of the common culture. Lots of Shakespeare’s plays–The Merchant of Venice comes to mind–were pretty clearly stolen in some sense from other works floating around at the time; he stole the plots and made the writing better. Lots of Disney’s movies (and, no doubt, other studios’ movies as well) are based on traditional folk stories or other things that were for whatever reason in the public domain. Making the public domain smaller by increasing copyright terms or the scope of what’s considered infringement makes it harder to create new works.

What’s more, there’s an assymetry at play here–stronger copyright increases the incentive to create commercial works but increases the costs of creating commercial and non-commercial works alike. Consequently, when copyright is weakened or (as has invariably been the case) strengthened, you shift the balance of power between commercial and non-commercial uses. There are some real tradeoffs here and a real need for balance.

I don’t think we really disagree here. The key phrase in my original post was “well-designed.” Our current copyright system isn’t especially well designed. Most obviously, copyright terms are far too long. The courts also do a poor job of protecting fair use–especially in audio and video markets, where it’s been all but obliterated.

So I’m certainly not making an argument for further strengthening the copyright system. I agree with Matt that copyright law is too broad and ought to be reformed. But that’s not the same as saying that copyright should be abolished, which is what Mr. Levine advocates. If you weaken copyright too much, you undermine the incentive for creativity so much that you would significantly undermine the creation of certain kinds of copyrighted works.

There’s an interesting story on B1 of today’s Wall Street Journal about cellular companies establishing very restrictive standards for wireless media content transmitted over their devices. I have yet to see the final guidelines that the Journal gained access to, but it sounds like Verizon, Cingular, Sprint and others will be imposing some very stringent controls in an attempt to curtail nudity and sexual content, foul language, violent programming and even hate speech.

As I pointed out in my recent PFF study, “Parents Have Many Tools to Combat Objectionable Media Content,” this is just another example of the sort of steps that media providers and distributors are taking to help parents and consumers restrict or curtail objectionable content before they call upon government to do that job for them. Of course, one could argue that the only reason they are taking such steps is to avoid potential government scrutiny in the future. (Then again, the FCC does not currently possess the legal authority to regulate “indecent” or “violent” content on cellular / mobile networks or devices.) Regardless, I think it’s great that companies are establishing some voluntary guidelines and controls.

One thing that is still a bit unclear to me, however, is exactly how cellular carriers plan to police all the media content that will increasingly be flowing over their networks. The Journal article says that carriers are currently relying mostly on ad-hoc phone calls or e-mails to specific media providers to remove or edit certain types of potentially objectionable content. But even if the cellular carriers allocate more resources to such ad-hoc enforcement efforts, it certainly won’t be fool-proof. It will be easier to police content provided by large players (such as MTV or Playboy, for example), but what about all the organic, bottom-up, user-generated content?

This is the problem News Corp. has been facing in recent months with MySpace.com. Millions of average people (mostly teenagers) are posting countless bits of personal material on their sites. Some of it can get a little raunchy or offensive. That’s created a significant challenge for MySpace, but they are trying to do their best to keep up with it.

Cellular carriers will face that same challenge in coming years as more and more media goes mobile. It will be interesting to see how they deal with it and what the response of the legislative / regulatory community will be to these self-regulatory efforts. Stay tuned; another major First Amendment battle could be developing over that tiny TV screen in your pocket !

Technology Daily (subscription) reports that several conservative groups blasted Senate leaders Tuesday for not acting on legislation to increase broadcast indecency fines, and “failing to deliver an issue to values-oriented Republican voters”. Said Amanda Banks of Focus on the Family: “[t]here is no reason why in 2006, just months before this Congress is going to be out of session, it has not passed the Senate and moved on to the [president’s] signature.”

But Focus’s focus is wrong here. Increased fines on broadcasters would do little to help parents protect their children from programming they see as offensive. Broadcast TV, remember, is only a small part of TV viewing–most is now on cable channels not under the FCC’s authority. And that authority, for good constitutional and policy reasons, is unlikely to be extended. If anything, given the legal challenges recently filed against the FCC’s latest round of indecency fines, that authority will be pared back.

Rather than the dead-end of goverment content regulation, the real goal should be to increase the ability of consumers to themselves control the content of what appears on their TVs. Congress this week took a giant step toward that goal yesterday–as the House Commerce Committee approved legislation to speed the launch of new, Internet-based, video TV services developed by Verizon, AT&T and others. Not only will these new offerings provide welcome new choices for consumers, but the technologies they use promise to make it easier for individual consumers to get individualized TV programming packages.

Such service would be a boon to beleagured parents. Rather than criticize Congress for not increasing the FCC’s power, conservatives should be cheering on this very real step toward consumer choice.

It’s day 4 of the Microsoft European hearing and today the Judges asked some really great questions about interoperability. Judge Cooke, whose Irish accent comes and goes, really cut through the blather on both sides of the argument and got to the core of the issue. The basic issue is that in 2000, Microsoft figured out how to create a distributed computing cluster that would work really well with thousands of computers (in the Court proceedings everyone is calling this the “blue bubble” because it is a cluster of computers that can only talk with other computers using “identical logic” and Microsoft outlined it in a graph colored blue). This is in contrast to other vendors like Sun Microsystems that can only offer a solution using four computers and Novell that can only do it with 150. Microsoft’s competitors would really like to be able to see and copy Microsoft’s patented invention, as they have failed to find the secrets through reverse engineering. The European Commission in 2004 was convinced that servers made by companies such as Sun Microsystems and IBM have trouble “interoperating” with Microsoft servers because Microsoft is not sharing the essential language needed to talk between computers. This sounds like a convincing argument, but it’s not an accurate representation of the issue and completely ignores third-party products that already exist to facilitate server discussion. Indeed, as the Court heard, most of the complaining companies brag in marketing materials that their servers can interoperate with Microsoft.

So, what is really going on? As Microsoft’s attorneys and other American representatives told the Court, the intellectual property that Microsoft’s rivals are trying to get their hands on does not act like a language, but rather like DNA. That would give Microsoft’s rivals the ability, not to talk with them, but to clone them–a dangerous development that would be costly in terms of profits for Microsoft and for the future of any company that relies on intellectual property for its livelihood.

Intellectual Monopoly?

by on April 27, 2006 · 24 comments

The first panel of yesterday’s Cato conference focused on Against Intellectual Monopoly, a treatise against patent and copyright law. One of the authors, David LeVine, faced off against James DeLong of the Progress and Freedom Foundation, with Cato’s Jim Harper providing some theoretical background at the outset.

I wanted to be convinced by Mr. LeVine’s argument. The world would be a much simpler place if we could just forget about all this intellectual property stuff. IP litigation consumes a lot of resources and the IP system is prone to rent-seeking legislation like the DMCA. Unfortunately, he just didn’t make a very convincing case. He did point out certain classes of content that could be produced for free; open source software is an obvious example. But it’s hardly groundbreaking to point out that some creative works could be produced without the IP system. The central question is whether, on the margin, intellectual property increases or decreases incentives for the production of creative works.

I just didn’t think LeVine did a very good job of engaging on this question. As DeLong pointed out, there are some classes of creative works, such as big-budget Hollywood movies and pharmaceuticals, which it seems exceedingly unlikely would be produced without an intellectual property system. When asked about the King Kong example, LeVine seemed to me to dodge the question, giving examples that really aren’t analogous.

Moreover, LeVine seemed not to grasp the point that copyright and copyleft products can perfectly well co-exist side-by-side. Bad legislation like the DMCA aside, there’s no reason a well-designed copyright system should in any way impede the creation and distribution of non-commercial creative works. True, I can’t take the source code to Microsoft Windows as the basis for my next open source operating system, but in an non-IP world Microsoft Windows likely wouldn’t exist, so that doesn’t seem like a great loss.

If non-commercial, decentralized production methods really are superior, they should be able to prove their worth without changes to the copyright system. So I’m perfectly willing to take a wait-and-see attitude. If, 20 years from now, we’re all running Linux, going to movies produced by volunteers in their free time, and taking drugs produced at low cost by Universities, then we can by all means abolish intellectual property then. But right now, intellectual property seems to be doing a pretty good job of stimulating the production of creative works, and I’m not inclined to upset the apple cart without a good reason.