Copyright

Needing a critter fix, I hauled The Grub, now three, off to the National Wildlife Visitor’s Center this weekend for their festival. Actual wildlife was promised, and they had splendid owls and turtles, looking rather sleepy. On the whole, though, I find that the direction that such organizations has taken in their public presentations to be both uninteresting and depressing. I learned little about the behavior, habits, and lives of the critters being studied, and a great deal about their habitats and the destruction thereof.

There are good reasons for the focus on systems. Although the naturalists would not put it this way: The environment is a commons of sorts; as such, it is likely to be degraded, with no one properly internalizing the costs–it needs a fix at the systemic level. But I already knew this; I wanted to learn more about the critters. I like critters. Too much. I am an old school amateur naturalist of the sort that made such a disaster of federal forest management–putting out forest fires when they ought to be allowed to burn off the brush and bugs, because I am not willing to see a racoon’s toes be singed. But the result of decades of such a policy is a sick forest that ultimately burns so fiercely it cannot be controlled at all.

Copyright debates strike me as suffering from the opposite defect. We hear a great

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Chris Castle and others square off to discuss what’s wrong with the music industry at the Commonwealth Club in San Fransisco.

Over at Techcrunch, Mike Arrington reaches the conclusion I advocated a couple of years ago: in the long run, the market price of most music is going to be zero. I think Arrington actually focuses too much on piracy. Yes, in the short run peer-to-peer networks are an important source of price pressure. But the far more important factor is the sheer number of people who want to be rock stars. Now that the bottleneck of CD production and distribution has been removed, any musician can reach an infinite number of fans at zero cost. As a result, more and more musicians will find it in their self-interest to voluntarily give music away for free as a means of building up their fan base. Over time, consumers will get used to music being free, and at some point music will be just like news and punditry are today: the vast majority will be free and ad-supported, with a small minority continuing to try to charge money.

However, I do think Arrington gets this backwards:

The price of music will likely not fall in the near term to absolutely zero. Charging any price at all requires the use of credit cards and their minimum fees of $0.20 or more per transaction, for example. And services like iTunes and Amazon can continue to charge something for quality of service. With P2P networks you don’t really know what you are getting until you download it. It could, for example, be a virus. Or a poor quality copy. Many users will be willing to pay to avoid those hassles. But as long as BitTorrent exists, or simple music search engines like Skreemrallow users to find and download virtually any song in seconds, they won’t be able to charge much.

On the contrary, the transaction costs of charging small amounts of money is the reason I think the price will drop from its current price of around a dollar to zero. In the absence of those transaction costs, it’s possible to imagine the price gradually falling over time, perhaps reaching 25 cents in 5 years and a nickel in 10 years. But the problem is that the costs of processing a 10 cent payment is on the order of 10 cents, (and as Clay Shirky has convincingly argued, this isn’t likely to change) so it makes more sense to just give the song away and find other ways to monetize those eardrums.

As predicted, Ms. Thomas lost her file-sharing case and was ordered to pay more than $200 grand to the recording industry. As much as I dislike a lot of what the RIAA does, I can’t work up too much sympathy for the woman.

One thing that is worth mentioning is that $222,000 seems like an excessive amount of money to fine someone for sharing 24 songs. It’s a basic principle of law that damage awards should have some reasonable relationship to the harm caused by the defendant, and it seems highly implausible that making a single song available online could have caused the recording industry anywhere close to $9,250 in lost revenue. Of course, under copyright law, the jury could have fined her 15 times that amount, which would have been completely absurd.

Update: I can’t find details for Minnesota, but just for purposes of comparison, shoplifting less than $500 of merchandise in New Jersey will get you a $10,000 fine. In Massachusetts it’s $1000, and the same is true of Connecticut. Of course, you can also get jail time for shoplifting even small amounts, but I believe that would require a criminal trial and a higher burden of proof. Most of the seem to have a ceiling around $150,000 in fines for stealing merchandise in the tens of thousands of dollars.

Ars Technica’s Eric Bangeman has been doing some great on-the-spot reporting on the first file-sharing trial in my home state of Minnesota. Assuming his summary of the evidence is accurate, it’s awfully hard to believe her claims to innocence:

After establishing that she has accounts with Match.com, MySpace, plays games online, and has an Internet account at home, Gabriel then asked her if she posted to the “anti-RIAA blog” Recording Industry vs. The People under the username “tereastarr.” After answering in the affirmative, questioning then turned to whether there was another PC in her home the night Media Sentry discovered the tereastarr@KaZaA account. She said that there was not.

On a number of occasions during her testimony, Gabriel asked Thomas to refer to her depositions, reminding her that she was under oath when she gave the depositions and was under oath on the stand. Gabriel then proceeded to show the jury the ubiquity of the tereastarr username in Thomas’ online persona. The jurors saw screenshots of her pogo.com and match.com profiles and the Start menu from her Compaq Presario PC, all of which had the tereastarr username…

Gabriel then turned to her eclectic music collection, comparing some of the bands seen in the KaZaA share to found in her My Music folder upon forensic examination of her hard drive. He rattled off bands such as Lacuna Coil, Cold, Evanescence, Howard Shore, Green Day, Black Sabbath, Creed, Belinda Carlisle, A.F.I., Dream Theater, Sheryl Crow, and Enya, concluding by asking, “Does it surprise you to learn there are more than 60 artists you listen to in the shared folder?”

…Under cross-examination by her attorney, Thomas explained the date discrepancies. She originally had said that she bought the PC from Best Buy in 2003 and that the hard drive was replaced in January or February of 2004. After her forensic expert inspected the hard drive and found that it wasn’t manufactured until January 2005, she then said that she bought the PC in 2004 and that the hard drive was replaced in March 2005. “I was a year off on everything in my deposition,” she said. He also said that the “jury could do the math” on whether it was possible for her to rip 2,000 or so tracks over a two-day period given the demonstration earlier in the day.

Either that’s an incredible series of coincidences, or the woman is guilty as charged. Whether you agree with the law or not, it sure looks like she broke it. Which makes me wonder what she thinks she’s accomplishing. All she’s likely to accomplish is to give the RIAA its first scalp.

Does my draft paper, Outgrowing Copyright: The Effect of Market Size on Copyright Policy [PDF] commit economic heresy? At several points, at least, it appears to stray from what you might hear in Econ 101. Consider the following excerpt (footnotes omitted), in which I argue that demand for copyrighted goods follows a binary function: Consumers typically demand one copy, or no copy, but not fractions of copies.

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In an attempt to explain the effect of market growth on copyright policy, I earlier told a parable, promising graphs to follow. In the meantime, I’ve drafted an entire paper on the topic, Outgrowing Copyright: The Effect of Market Size on Copyright Policy [PDF].

You can find the graphs describing the parable—actually, modified version of the story I told earlier—in that paper. Rather than replicate those graphs, here, I’ll offer you the paper’s abstract:

Does copyright protection offer the best means of stimulating the production of expressive works? Perhaps, at the moment, it does. If so, however, it will probably become inefficiently over-protective as the market for expressive works grows. With such growth, copyright owners will find it increasingly easy to engage in price discrimination against customers willing to pay a premium for particular expressive works. In so narrowly divided a market, the power to bar substantially similar copies will empower copyright owners to extract monopoly rents. And, yet, we have no reason to expect that copyright’s production or distribution costs will likewise increase. Holding all else equal, therefore, growth in the market for expressive works will at some point cause copyright’s social costs to outweigh its benefits. This paper explains that effect and discusses how policymakers should respond.

The paper includes not just graphs describing the parable of the village authors, but graphs of more general import. I might share some of those in upcoming posts.

[Crossposted to Agoraphilia.]

“The real consumption of music seems to be up.”

Nick Carr’s comments on CCIA’s study of fair use include the following critique:

What the authors have done is to define the “fair-use economy” so broadly that it encompasses any business with even the most tangential relationship to the free use of copyrighted materials. Here’s an example of the tortured logic by which they force-fit vast, multifaceted industries into the “fair use” category: Because “recent advances in processing speed and software functionality are being used to take advantage of the richer multi-media experience now available from the web,” then the entire “computer and peripheral equipment manufacturing industry” qualifies as a “fair-use industry.” As does the entire “audio & video equipment manufacturing” business. And the entire software publishing industry. And the entire telecommunications industry.

Oh dear. I think one could fairly count the Tivo, and a portion of some of the activity described above… anything involving parody, certainly.

Of course, there is a larger conceptual problem. Fair use is always fair use *of* something copyrighted… so do we add fair uses on to the value of copyright uses? There is a case to be made that the copyrighted materials–and the consequent fair use of them–would not exist in such abundance but for copyright. The logical response to that is, yes, but we wish to measure in particular the value of this particular *exception.* Fair enough, so long as one bears in mind the risk of the exception’s swallowing the rule. Also, that a substantial part of the economic activity in question might well occur in similar form even without the exception, due to the growth of markets in snippets and bits and other licensed material for downstream use.

Empirical studes are funny things, aren’t they?

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