Keeping politicians' hands off the Net & everything else related to technology
Anyone who could describe America’s drug laws as “lax and unenforced,” in a nation where hundreds of thousands of people are arrested every year for minor drug offenses, either doesn’t know what he’s talking about or isn’t a libertarian. And if the drug war is like copyright, doesn’t that mean the libertarian position on copyright is to repeal it?
I’ve got a new op-ed in the Springfrield News-Leader on cable franchise reform. It’s mostly Missouri specific, but I do survey a couple of important recent studies on the issue:
Several new studies find that reform would bring substantial benefits for consumers. Jerry Brito and Jerry Ellig of the Mercatus Center at George Mason University calculate that cable franchise reform could increase competition and save consumers nationwide $5.5 billion per year. Kent Lassman of the Progress and Freedom Foundation published a study last month that focused specifically on the Missouri cable market. He estimated that franchise reform could save Missouri consumers more than $100 million per year. These predictions are borne out by experience. A survey released last month by the American Consumer Institute shows the dramatic results of the Texas franchise reform: in three of the first communities where Verizon Communications began offering video service in competition with the incumbent cable companies, more than 20 percent of consumers switched to the new service. Customers who switched since Verizon entered the markets have saved an average of $20 per month on their cable bills. But the benefits of competition go beyond saving money. Many of the “switchers” indicated they did so because they preferred the package of channels offered by the new company. Others cited dissatisfaction with the quality or customer service of their previous company. Competition drives down prices, but it also spurs companies to offer higher-quality, more responsive service. Consumers in Texas are reaping those benefits.
My friend Alex Singleton points me to this essay on the “free lunch economy.” Madsen Pirie uses the clever example of matches to illustrate the trend of more and more things being made available to consumers at zero cost:
When George Orwell was Down and Out in Paris and London, he observed that homeless people, then called “tramps,” would pick cigarettes from the gutter and sometimes roll their own from the residual tobacco (there were few filter tips in his day). The problem was matches; these were a valuable commodity among the destitute community, for few would spend the few coppers a box cost, even if they had the money. Now, of course, free matches are widely available, and not as many people buy them. They use free boxes which carry advertising, or they use cheap disposable lighters at a tiny fraction of what a lighter used to cost.
This is obviously a genuine trend, especially online. We’ve come to expect search engines, web browsers, blogs, phone calls, and many other digital products to be available to us for free. The marginal cost of such products has become so low that many firms have found that they can sustain their business models with just a trickle of advertising.
Some people have also come to expect music and movies for free:
Record companies made money by selling at several pounds each pieces of plastic which cost pennies to produce. The value lay in the intellectual property. The physical object that changed hands in the form of a vinyl disc, a tape, or a CD, was the way value was exchanged. The rise of the personal tape recorder caused some concern, because teenagers didn’t regard it as stealing to copy a friend’s music. Record companies began insisting that DJs talk over the opening of the records they played so that listeners could not record a “clean” copy. The rise of the internet and of file sharing caused a major change in the dynamics of that market. Purchasers, many of them young people anxious to stretch their pounds, found they could share files with each other, and that advancing technology gave them top-quality copies. Music sales went into decline, and there were fears for the industry itself. The solution has been paid-for downloads such as those bought through Apple’s iTunes. Purchasers have been found to be ready to pay a small sum to download legally, with increased numbers of them making up the lower price they pay. The music industry is breathing more easily, but no one doubts that it was the free product which forced the change.
Unfortunately, the author doesn’t seem to notice that this is a fundamentally different phenomenon. Google gives its search engine for free on purpose, and they have a business model that allows them to profit from doing so. One reason they do so is because other search engines are also offering their own product for free. Market competition keeps the price at zero.
The music example is quite different. In that case, what’s driving the price down isn’t competitors offering their products at a lower price, but consumers simply taking the products without paying. Whatever the ethics of the situation (I tend to think taking music you haven’t paid for is wrong) what’s clear is that the economic dynamics of this situation are rather different. The reduced price doesn’t necessarily reflect reduced costs on the part of the music industry, and so there’s no reason to think that the resulting revenues will be sufficient to support continued music creation. We might end up in a situation where there are so many free-riders that the music industry is forced to dramatically cut back its activities.
I happen to think that in the long run, the market price for most music will be zero. That’s because music is rapidly getting less expensive to produce, and there are probably thousands of people who would gladly produce music gratis if only they could get a substantial audience, just as there are millions of bloggers who give away their blog posts for free. But that doesn’t mean that musicians shouldn’t be free to charge for their music if they want to. And I don’t think the increasing tendency of people to take music without paying for it is anything to celebrate. It’s certainly not “market competition” as we ordinarily understand the term.
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.
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.
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.
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.
Here’s Patrick Ross’s take on today’s Cato conference:
I wonder how some of the Cato fellows and alums in the audience felt, then, when twice Cato was welcomed into the fold as a copyfighter. Rep. Zoe Lofgren and the CEA’s Gary Shapiro both did so. Lofgren said she didn’t recall ever stepping foot into Cato before, but “this might be one area where Cato and I form a working partnership.” Shapiro urged Cato to take the issue to the Hill. What Lofgren and Shapiro are referring to is a recent paper published by Cato that calls for, essentially, a repeal of the DMCA. The paper takes a very cynical view toward intellectual property rights and creators.
To be honest, I’m not sure what he’s talking about in that last sentence. At no point in my paper do I write anything that could be plausibly described as a “cynical view toward intellectual property rights.” As I’ve tried over and over to emphasize, my concern is with the ways the DMCA has interfered with the marketplace in realms outside the traditional scope of copyright, such as preventing interoperability and stifling competition. I can easily imagine Mr. Ross having legitimate policy disagreements with my analysis, or arguing that the benefits of DRM technology are worth these downsides. I think that would be an interesting and productive debate. But for some reason, he doesn’t seem very interested in it.
Instead, Ross seems determined to knock down a straw man of my views. When I argue that the DMCA is a poor method of protecting copyrights, he describes that as being “cynical” about intellectual property. As in his epic three part critique to my paper last month, Mr. Ross’s primary mode of argument seems to be to misrepresent my arguments and positions.
I should mention he’s not the only one who responds to criticism of the DMCA by refuting straw men. On my own panel today, Emory Smith of the Business Software Alliance seemed not to have listened to the others on our panel, as he spent virtually his entire speech refuting the position that piracy was hunky-dory– a position that no one on the panel had taken. The defenders of the DMCA seem determined to avoid having a serious debate about the law’s effectiveness or unintended consequences. It’s so much easier to simply paint those who disagree with them as “copyfighters,” “intellectual property skeptics,” or IP anarchists who want to “abolish IP rights in favor of some mystical commune wherein all IP is free as the air and creators are compensated by government.”
I think that “cynical” is a reasonable way of describing this rhetorical strategy. I can only imagine that they’ve adopted it because they don’t have good responses to the actual arguments against the DMCA. For example, despite several requests, Mr. Ross has yet to substantiate his claim that I made a mistake when I wrote that “the DVD CCA never approved any software DVD players for Linux [and] that the DVD CCA must approve DVD software players.” I think documenting that accusation might be a good starting point for a debate based on facts and arguments rather than name-calling.
This is a quick reminder about two upcoming events:
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.
