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.
Larry Lessig links to news that FCC insiders leaked details of forthcoming decisions to industry insiders in violation of the rules. He is justifiably outraged at the way the FCC has apparently abused the public trust for the benefit of the deep-pocketed interests that wield the most clout in telecom regulation. Administrators who break the law should be fired, and perhaps prosecuted in particularly egregious cases. I think it’s great that Lessig is highlighting these sorts of problems, and I’m looking forward to seeing his proposals for reducing this kind of corruption.
But I also think it’s worth keeping in mind that the odds are very long. This is not a new problem. Government regulators have been doing the bidding of industry incumbents for almost as long as they’ve been in existence. Reformers have been trying to clean up corrupt regulatory agencies for decades, and so far the only reliable way they’ve discovered to clean up a regulatory agency is to abolish it completely.
Which isn’t to say that we should stop trying. On the margins, it is possible to make government more transparent and accountable, and I expect Lessig will use his considerable intellect to come up with some innovative ways of doing that. But in the meantime, we should keep in mind that government agencies don’t work the way they’re described in high school civics classes. They are, in fact, dominated by industry incumbents who are experts at twisting the rules to their advantage, to the detriment of both competitors and consumers. And as long as that’s true, we should be wary of giving it more power over anything,
especially over a disruptive technology like the Internet.
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.
Rich Karlgaard, publisher of Forbes, had an excellent editorial in yesterday’s Wall Street Journal commenting on the silly lawsuit that a New York woman has filed against Apple for supposedly violating price discrimination laws when the price of the iPhone dropped by $200 bucks. Apparently, this woman believes she is the victim of some sort of grave cosmic injustice because she shelled out $600 clams to be an early adopter, only to see the lesser mortals among us get their iPhones for $400 just a few months later.
Karlgaard points out that this is just the way a world governed by Moore’s Law works:
What’s going on here? Did Mr. Jobs gouge early technology adopters just for a couple extra (billion) bucks? I don’t think so. After a long streak of successes, Mr. Jobs and Apple — whose stock is up more than 20-fold since 2002 — have collided with two forces stronger than they are: One is the cheap revolution; the other is the global economy. Together they forced Apple to drop the price of the iPhone and offend its geeky customer base.
To illustrate the power of “the cheap revolution” in action within our new digital economy, Karlgaard provides this wonderful example:
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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.
Legislation has been proposed in the House of Representatives that would regulate “violent entertainment” shown during airline flights. Rep. Heath Shuler (D-NC) and several co-sponsors argue that a “Family Friendly Flights Act” is needed to protect kids from such fare while they are flying. In my latest editorial for the City Journal, I point out why it would be a mistake to empower federal regulators to become “Long-Range Censors” and show that many voluntary alternatives exist. Read on…
Long-Range Censors
We don’t need government regulations on in-flight programming.
by Adam Thierer
City Journal
October 3, 2007
Any parent who travels regularly with young children knows that fidgety kids and long, cramped airline flights are a bad mix. And when the kids start pulling each other’s hair or running up and down the aisle, a good movie or TV program can serve as the perfect sedative. But not all in-flight shows are okay for kids. When airlines show programming with violent content on the overhead screens—a bloody gunfight, say, or King Kong ripping apart a dinosaur’s jaws—it can terrify children, and disturb mom and dad.
Some in Congress are suggesting that new regulation is the answer. Democratic representative Heath Shuler of North Carolina, along with several cosponsors, recently introduced the Family Friendly Flights Act, which demands that airlines create “child safe viewing areas”: no publicly viewable TV screens would air violent programming within ten rows of the designated zones. The act defines “violent programming” as any movie originally rated PG-13 or above, or any television show rated PG-V or PG-14-V or above. In other words, the pre-edited versions of films or TV shows that studios produce especially for the airlines would still face a ban, based on their original ratings.
Despite the best intentions behind it, such regulation is unwarranted. Enforcement of the FFFA would spawn a needless and expensive regulatory apparatus, and given the ambiguity surrounding what constitutes “violent programming,” constitutional challenges would certainly follow, too.
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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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The New York Times editorializes today about “The Verizon Warning,” which refers to the incident last week involving Verizon blocking text messages from NARAL, an abortion rights organization. Verizon quickly admitted they had made a mistake and changed its policy. As my TLF blogging colleague Tim Lee pointed out, “the market worked: Verizon’s decision sparked a consumer outcry, which in turn caused Verizon to re-consider its decision within barely 24 hours of its coming to public attention. This is hardly a good example of the need for greater regulation.”
Indeed. But that didn’t stop some regulatory activists from using the incident as their latest rallying cry for Net neutrality mandates. But the
New York Times actually goes much further in today’s editorial suggesting that Verizon’s mistake constitutes “textbook censorship.” The Times goes on to say that, “Any government that tried it would be rightly labeled authoritarian. The First Amendment prohibits the United States government from anything approaching that sort of restriction.”
Whoa. The Times apparently needs a First Amendment 101 lesson. While it is certainly true that any government action restricting speech in this fashion would constitute a violation of the First Amendment rights of the citizenry, what Verizon did in this case is not on par with that. When government censors, it censors in a
sweeping and coercive fashion; it prohibits (at least in theory) the public from seeing or hearing everything it disapproves of, and it punishes those who evade such restrictions with fines, penalties, or even jail time. Not so for Verizon or any other private carrier.
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Congress gave itself 6 months to reconsider the dreadful Protect America Act, a careless recent amendment to the Foreign Intelligence Surveillance Act. Word is that they want to come up with something before they recess for the year.
The ACLU has a campaign underway called The FISA Flood of 2007, inviting Congress to control warrantless wiretapping. It’s a meritorious idea, controlling warrantless wiretapping, don’t you think? If you’re uncertain, take it from me: It is. It’s up to you, of course, but if you want to see the campaign do so here.
Congratulations are in order to David Robinson, who has left his previous gig at the American Enterprise Institute to take a position in Ed Felten’s new IT Policy Center. David’s a smart guy, and he joins a group that has done some of the most innovative work in tech policy, so expect big things from them in the future. Today he’s got a post up at Freedom to Tinker comparing today’s network neutrality debate to the Western Union telegraph monopoly. Here’s a quote from Paul Starr’s The Creation of the Media:
[W]ithin the United States, Western Union continued to dominate the telegraph industry after its triumph in 1866 but faced two constraints that limited its ability to exploit its market power. First, the postal telegraph movement created a political environment that was, to some extent, a functional substitute for government regulation. Britain’s nationalization of the telegraph was widely discussed in America. Worried that the US government might follow suit, Western Union’s leaders at various times extended service or held rates in check to keep public opposition within manageable levels. (Concern about the postal telegraph movement also led the company to provide members of Congress with free telegraph service — in effect, making the private telegraph a post office for officeholders.) Public opinion was critical in confining Western Union to its core business. In 1866 and again in 1881, the company was on the verge of trying to muscle the Associated Press aside and take over the wire service business itself when it drew back, apparently out of concern that it could lose the battle over nationalization by alienating the most influential newspapers in the country. Western Union did, however, move into the distribution of commercial news and in 1871 acquired majority control of Gold and Stock, a pioneering financial information company that developed the stock ticker.
This is, of course, the position Felten has staked out in the network neutrality debate: that actually passing regulations is likely to have negative consequences, but that Congress and the FCC can use the threat of regulation to prevent the telcos from mis-behaving too egregiously. I’m personally not entirely comfortable with this approach because I think we should be wary of letting government officials to govern by threat rather than explicit regulation. But so far, that’s the strategy we’ve been following by default, and it appears to be working pretty well.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.