The Commercial Market and Copyright

by Krishna on November 4, 2007

In response to a recent article by Jeff Atwood about BitTorrent, Charles Petzold wrote an amusing post on how a failure of the commercial market could be used to justify illegal behavior. The debate was interesting because it brought out many aspects of the copyright situation. Petzold is a content producer and is rightfully worried about piracy. Atwood is a consumer and is rightfully agitated about not finding something he wants to purchase.

Downloading content has become simpler over the years, with better software and faster Internet connections. The costs are virtually zero. In fact, with the advent of YouTube and other streaming media services, a content user does not have to download anything. The whole experience has become seamless as the only task required from users is to click a link.

Content owners have tried to apply various types of Digital Rights Management to prevent copying of digital content. This has proved problematic because lack of DRM compatibility between devices means that users get frustrated when they cannot perform legitimate transfers or backup their content. Older, paid content runs the risk of being lost because of hardware issues. Methods to bypass DRM, although illegal in various degrees, are available for those motivated to do so.

The economic effects of unauthorized distribution of creative content (music, movies and books) are not very clearly understood. For example, would users involved in such activities have ever paid for the content, if they could obtain it legally? If the answer is no, then the economic loss to the producers is low. But the answer could very well be different. A significant portion of such users may have paid for the content if they had no other avenue. This is particularly true if the content was very popular.

Nobody is tracking this, but my guess is that the overwhelming majority of unauthorized distribution comprises of popular content which the users presumably value. Let us assume that this content was not available. For zero economic loss to the producers, they would have decided to forgo it or borrow it from someone. The producers would have experienced some loss if downloaders bought the content or rented it. We don’t know this information.

If content were freely available or easily downloadable, paying users may decide to go the free route themselves. After all, they stand little to gain from subsidizing the free riders. If my friend downloads 1000 songs for free, why should I pay for them? Even if I paid one cent for each song, I would be paying $10, $10 too much.

The equation is muddied by the fact that the more content is downloaded and used, the more popular it (or the creator) could become. For example, software product makers often overlook piracy of their products when they want greater public exposure. The popularity of a movie or song can translate into greater sales of the content itself or associated merchandise. This is clearly a good option for struggling artists, but perhaps not so much for established ones.

However, there is no guarantee that greater marketing results in greater success. The work of the artist or creator may appeal to a limited audience for various reasons such as cultural trends. Giving content for free is a marketing tactic, not an assurance of success. For example, Radiohead’s “Pay what you want” program is a tactic that became successful. It may or may not work for others imitating it.

A key aspect of the entire debate is the difference between content creators and content owners or publishers. The former are the actual persons like authors, writers, singers, etc. who have created the content. But the content is usually sold by big publishing houses, movie distributions and music labels. Unauthorized distribution is frequently characterized by sentiment against the large profits (by extension, undeserved) of such content owners.

Such feelings are reinforced by the heavily criticized lawsuits filed by the RIAA against ordinary people for copyright infringement. The frequent changes to copyright law, extending copyright term extension and criminalizing copyright-circumventing technologies at the behest of media lobbies, have turned many people against them.

Resorting to legal measures and government intervention usually reflects the incapability of an industry to adequately respond to economic conditions. The “failure of the commercial market” is real and the gap is being filled by unauthorized distribution and downloading. It is possible to invent a business model that could take advantage of these gaps. For example, in the movie and TV industry, the gaps are:

  • Unavailability of the movie (or TV series) (regardless of their popularity) for months after their initial release. I think this has something to do with the popularity of the movie or syndication rights with other networks or just “perfect” timing (like releasing the last season’s DVDs a month before the new season), but it is still a nuisance.
  • Unavailability in many geographic regions across the world. This may not be true of recent Hollywood blockbusters, but it is certainly true of movies in other languages, older movies, etc.
  • Impossibility and/or inconvenience of viewing on different devices or computers. DVD region codes are a prime example of ridiculous thinking in an age of heavy international travel and migration.
  • Difficulty (illegality?) of fair use of video clips for legitimate purposes like news reporting, discussion groups, etc.
  • Difficulty of random access. For example, in any long-running TV series, there will be a few episodes that stand way over the rest. In most cases, it is impossible to buy or rent them individually.

A last problem is the one that Atwood faced: simply, lack of information about availability. Will the DVD ever come out? If the producers do not wish to sell the content, do they wish to suppress it? Do they mind if someone else makes money out of it or just distributes it for free? We simply don’t know. The current copyright law (in the United States) does not address the situation at all, as it allows copyright to extend to the life of the author plus 70 years.

The key problem with media companies is that they do not understand how disruptive technology can be to their existing sales channels. They perhaps do not realize how draconian laws and intimidating lawsuits do little to reduce common public behavior. They do not see their own failures in addressing market shortcomings. And in the long run, they will be replaced by nimbler companies that understand how to take better advantage of the market.

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