Piracy as cheap market research

This BGR headline from Thursday May 2 caught my eye:

Netflix content chief says piracy drops whenever Netflix launches in new markets

Entrepreneurs take note: You could base a lot of successful businesses on those dozen words.

The content chief in the headline is Ted Sarandos, who says,

The best way to combat piracy isn’t legislatively or criminally but by giving good options.

He thus echoes Bob Iger, CEO of Walt Disney, who said,

The best way to combat piracy is to bring content to market on a well-timed, well-priced basis.

Must be a trend!

Of course, Iger made his comment over 6 years ago, so the lesson is taking a while to sink in.

Do you wonder why? I do. I wonder why it is that, in the words of Cory Doctorow, every few years the public must drag the entertainment industry, kicking and screaming, to the money tree, and shake it for them. And I have a theory.

I chalk it up to copyright law. Our baroque (not to mention ba-roken) copyright system fosters a monopoly mindset in the content cartel. When the government defines competition as “infringement”, you view your competitors as well as their customers as law-breakers. You sue them, and you spend your money lobbying the government for even stronger laws to protect your struggling business model.

But if your business is based on competition, rather than monopoly, you figure out what your customers want and you find a way to give it to them. If another company already has their business, you design your product or your price or your service to be more desirable than the alternative. Netflix appears to have a winning combination, at least when compared with BitTorrent, and Sarandos has discovered free enterprise.

Another example comes from the current controversy over Aereo. Aereo deploys thousands of tiny antennas to capture free broadcast television signals and retransmits those signals over the Internet to subscribers. The Aereo technology and business model are designed to squeeze through copyright’s byzantine intricacies, and last month a court decided they had succeeded. The broadcasters who challenged Aereo and lost vowed to keep fighting. They also threatened to get out of the broadcast-TV business if the courts continued to side with Aereo. News Corp., the parent company of the FOX network, put it this way:

We believe that Aereo is pirating our broadcast signal. We will continue to aggressively pursue our rights in the courts, as well as pursue all relevant political avenues, and we believe we will prevail. That said, we won’t just sit idle and allow our content to be actively stolen. We have no choice but to develop business solutions that ensure we continue to remain in the driver’s seat of our own destiny. One option could be converting the FOX broadcast network to a pay channel.

Rights and courts, political avenues and driver’s seats: The monopolist mind at work.

For a different approach, here’s Time Warner CEO Glenn Britt, whose business is also impacted by Aereo:

What Aereo is doing to bring broadcast signals to its customers is interesting. If it’s found legal, we could conceivably use similar technology.

The difference couldn’t be clearer, could it?

/Steve/

Guild: A medieval association

A few weeks ago, the Supreme Court issued a decision that’s good for garage sales and flea markets but (if Scott Turow is to be believed) will bring about “The Slow Death of the American Author“. Turow is president of the Authors Guild, an 8,000-member club that calls itself “the nation’s leading advocate for writers’ interests in effective copyright protection, fair contracts and free expression”. He’s also a practicing attorney and a best-selling (that is, rich) author of nearly a dozen books with over 25 million copies in print. Oh, and half a dozen movie adaptations. (Did I say rich?)

Turow issued his anticipatory autopsy in an April 7 New York Times OpEd piece commenting on Kirtsaeng v Wiley. The defendant in the case, Supap Kirtsaeng, made a small fortune following the mantra of free-market capitalism: Buy low, sell high. For Kirtsaeng, low was the retail price in Thailand for English-language college textbooks whose U.S. price was (no surprise to any student) high. Very high. Kirtsaeng’s family in Thailand purchased the books and shipped them to the U.S. where he sold them on eBay. The textbook publisher, John Wiley & Sons, claimed this particular example of entrepreneurship violated their copyright. The Supreme Court sided with Kirtsaeng, holding that the “First Sale” principle trumped Wiley’s claims. First Sale says that, once you’ve legally purchased a book, it’s yours to dispose of as you like: Keep it, lend it, rent it, sell it, burn it, whatever. You bought it, you own it.

Turow uses the Kirtsaeng victory as a launching pad into a universe of mortal grievances felt by his members. His OpEd is rife with errors of fact and analysis, which many articles have documented in great detail. He’s wrong about the Constitution (the Founders didn’t “instruct Congress to protect” the livelihood of authors), wrong about publishing (more books are being written and read today than ever), and wrong about economics (ask the bottled-water industry about competing against free alternatives). For in-depth rebuttals on these items and others, see (for example) Mike Masnick in Techdirt, Jeremy Greenfield in Forbes, and Barry Eisler and Joe Konrath in Joe’s Blog.

I want to focus here on what I find to be one of Turow’s most outrageous ideas, especially insidious because it’s unstated and yet pervasive. It’s the implicit presumption that, once an author has produced a book, he or she is entitled to some sort of payment from every person who comes in contact with that book for the rest of time. This can be seen as the exact inverse of the First Sale principle, and so it’s easy to understand why Turow finds the Kirtsaeng decision so troublesome.

Turow gives us three clear examples of this expansive view of authors’ rights:

1. The used book market. Turow laments “the enormous domestic market for secondhand books” and notes that “authors won’t get royalties” from the sales of imported books now okayed by the Supreme Court. Of course, each book sold on the secondary market has already been purchased somewhere, with royalties paid at that time. Apparently that’s not enough for Turow, who implies that authors are owed a cut of the purchase price each time a book changes hands. Let’s think about applying that idea to the used-car market the next time you’re ready for a trade-in. Or if that’s too corporate an example, how about the hand-made guitar or the craft-store jewelry you bought 15 years ago and no longer use. Why don’t those artisans have a claim on all future transactions involving their creations?
2. Libraries. Turow tells us that libraries, too, are part of what’s killing the American author. “No one calls our public library system socialistic,” Turow says (thereby calling it socialistic), “though it involves free distribution of the goods authors produce.” Now, wait just a second: The libraries purchased those goods, generating author royalties along the way. True, authors would undoubtedly be happier if everyone who wanted to read a book were forced to buy one rather than borrowing it from the library, but General Motors would probably sell more cars if there were no taxicabs or ride-share stations or rental-car agencies, not to mention buses and subway systems. Turow’s implication that it’s an unfair misappropriation of authors’ just rewards to get multiple uses from a single purchase escapes gales of laughter only because he buries it between the lines. And as to Socialism, Turow is conveying the subliminal message that libraries are un-American. Time for a history lesson: More than 50 years before the Constitution gave Congress the power to grant copyright protection to authors, Ben Franklin started the first lending library. And no one’s more American than Ben Franklin. Now, if you’re looking for something un-American, you can’t find a more profound affront to capitalism than copyright, whose sole purpose is to eliminate competition by means of a government-enforced monopoly.
3. Google. Turow’s unhappiness with Google knows no bounds, and his complaints are thoroughly debunked in the articles cited above. Here I want to discuss Turow’s objection to Google’s basic business model, generating advertising dollars out of an unrivaled ability to find and display content from all over the Web. To Turow, what’s illegitimate is doing this “while sharing none of the revenue with the author or the publisher”. Turow has it backwards, of course. The real question is why Google provides its services at no charge to content creators, including Turow and all the other authors, vastly increasing their visibility and accessibility to the public for free. Here are two notes of irony: In writing this article, the easiest way for me to find Turow’s New York Times piece was through Google. I suspect I’m not alone, and I’d be surprised if Turow himself hasn’t once or twice directed people to his article by telling them “Google Turow OpEd”. Irony #2: The online New York Times page with Turow’s article has ads, some inserted by Google-provided technology. Nearly all of that ad revenue goes to the Times. None, I suspect, goes to Turow.

Digital communications and the Internet have required the reinvention of jobs, businesses, and business models of every kind. While the monopoly granted by copyright law has provided a temporary buffer against change for a few industries and workers, the grace period is waning. Turow may believe he can insist that the coming change be on his terms, but he is wrong. For all its errors, Turow’s slow-death analysis should remind his membership of the lesson taught by Darwin: Adapt or die.

/Steve/

Pat pirouettes on privacy (or maybe not)

[See below for Pat Leahy's response to the CNET article cited here and for the follow-up CNET article.]

Only hours after the Republican Study Committee retracted a highly praised report on Copyright reform, Vermont Senator Pat Leahy has done them one better. He has taken a bill intended to limit government surveillance of your Internet activity and morphed it into one that gives you even less online privacy than you have now.

Consider these two headlines:

• In Scandal’s Wake: Leahy plan would bolster Web privacy
• Senate bill rewrite lets feds read your e-mail without warrants

The first one appeared yesterday in The St. Albans Messenger (“Vermont’s oldest evening newspaper”) and begins:

A bill to protect privacy online written by U.S. Sen. Patrick Leahy, D-Vt., will be taken up by the Senate Judiciary Committee when Congress returns from recess next week. The bill would require law enforcement to obtain a warrant, and thus show probable cause, before gaining access to a person’s email, Facebook messages or other online communications.

The second, reported today by Declan McCullagh in CNET News, provides quite a different version:

A Senate proposal touted as protecting Americans’ e-mail privacy has been quietly rewritten, giving government agencies more surveillance power than they possess under current law. CNET has learned that Patrick Leahy, the influential Democratic chairman of the Senate Judiciary committee, has dramatically reshaped his legislation in response to law enforcement concerns. A vote on his bill, which now authorizes warrantless access to Americans’ e-mail, is scheduled for next week.

McCullagh includes text of the revised bill, which grants warrantless surveillance privileges to any “independent regulatory agency” defined in federal code. Here’s that section of code:

Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Consumer Product Safety Commission, the Federal Communications Commission, the Federal Deposit Insurance Corporation, the Federal Energy Regulatory Commission, the Federal Housing Finance Agency, the Federal Maritime Commission, the Federal Trade Commission, the Interstate Commerce Commission, the Mine Enforcement Safety and Health Review Commission, the National Labor Relations Board, the Nuclear Regulatory Commission, the Occupational Safety and Health Review Commission, the Postal Regulatory Commission, the Securities and Exchange Commission, the Bureau of Consumer Financial Protection, the Office of Financial Research, Office of the Comptroller of the Currency, and any other similar agency designated by statute as a Federal independent regulatory agency or commission.

The Federal Maritime Commission? Mine Enforcement Safety and Health? The Postal Regulatory Commission? OSHA?

Apparently Washington isn’t as gridlocked as we’ve heard, at least not when a sufficiently powerful force weighs in. In this case, the powerful force is Big Brother, who’s unhappy about limits on his ability to spy on the rest of the family.

Update from the ever-vigilant Mike Masnick over at Techdirt:

There’s some debate over how serious this proposal was. A new report claims that this amendment wasn’t likely to be seriously considered, even though it does exist. Declan McCullagh is standing by his story, and saying that the claim that this amendment won’t be seriously considered is in response to the public outcry about it.

And here is Pat Leahy’s response:

The rumors about warrant exceptions being added to ECPA are incorrect. Many have come forward with ideas for discussion before markup resumes on my bill to strengthen privacy protections under ECPA. As normally happens in the legislative process, these ideas are being circulated for discussion. One of them, having to do with a warrant exception, is one that I have not supported and do not support. The whole thrust of my bill is to remedy the erosion of the public’s privacy rights under the rapid advances of technology that we have seen since ECPA was first enacted thirty years ago. In particular, my proposal would require search warrants for government access to email stored by third-party service providers – something that of course was not contemplated three decades ago.

And perhaps this is the last word, from Declan McCullagh:

Leahy scuttles his warrantless e-mail surveillance bill

After public criticism of proposal that lets government agencies warrantlessly access Americans’ e-mail, Sen. Patrick Leahy says he will “not support” such an idea at next week’s vote.

The vote is still scheduled for next week. Let’s see what the bill says and who votes how.

/Steve/

GOP gaffe on copyright reform corrected in record time

As Michael Kinsley tells us, a “gaffe” is what we call it when a politician tells the truth. A couple of days ago, the Republican Study Committee committed some truth in a widely praised position paper called Three Myths about Copyright Law and Where to Start to Fix It. In that paper, author Derek S. Khanna argues for such level-headed changes as:

• Statutory damages reform
• Expand fair use
• Punish false copyright claims
• Heavily limit the terms for copyright, and create disincentives for renewal

Well, as we also know, no good deed goes unpunished. In less time than it takes to say “Boston Strangler”, the RIAA and MPAA check-writers convinced the Republican Study Committee that the paper escaped “without adequate review” (that is, without review by the RIAA and MPAA). The RSC link to the paper now connects to a blank page, but you can find the original report here and here. For excellent summaries of the report, see Mike Masnick’s original Techdirt article and Peter Brantley’s blog for Publishers Weekly.

/Steve/

ACTA: The copyright treaty that won’t die

This week’s On the Media has an excellent 4-minute segment on ACTA featuring Harvard Law Professor Jonathan Zittrain.

ACTA? Isn’t that long gone?

Well, yes. Back on July 4, the European Parliament voted ACTA down, leading to a flurry of reports like this one from Wired’s UK Site:

Acta la vista, baby! European Parliament rejects controversial trade agreement

The European Parliament has rejected the controversial Anti-Counterfeiting Trade Agreement (Acta) by a vote of 478 to 39, which means that it cannot become law in the EU. This is the first time that the Parliament has exercised its Lisbon Treaty power to reject an international trade agreement.

Acta was a proposed international agreement that aimed to create international standards on intellectual property rights enforcement. Critics likened it to the Stop Online Piracy Act (Sopa), and argued that it would stifle freedom of expression on the internet, brand individual file-sharers in the EU as criminals, and introduce disproportionately harsh sanctions for breaches of copyright.

Google the phrase “ACTA is dead” and you’ll find nearly 200,000 hits. Hasn’t rigor mortis set in by now?

Well, there’s dead and there’s undead. Zittrain observes that the ACTA corpse has become a grisly organ donor, “with various constituent parts of it able to be sewn on to other creatures”. OTM co-host Brooke Gladstone listed some of the recipients of ACTA DNA: SOPA, PIPA, TPP, and CETA. That last one, the Comprehensive Economic and Trade Agreement, is currently under secret negotiation between Canada and Europe.

The key word here is “secret”, and that’s Zittrain’s main concern:

We don’t know what’s in it until it suddenly is dropped upon everybody for ratification. … It’s the attempt to do this without the best disinfectant, which is sunshine. And if there is the sunshine and you have a process that’s more open you really will have geeks who are keeping an eye on things, they’ll raise the alarm if they see something that worries them, there’ll be a discussion about it, we’ll see if people are rallied about it, and that’s how you do things in a democracy.

Well, that’s how you do things in a democracy if you want to use the democratic process. But the motivation behind all of these initiatives is not to follow the popular will, but to prop up the business model of the content industry. This is a business model based on monopoly and artificial scarcity that is untenable in a digital world and undermines the reason U.S. copyright law exists. Without rescue by law or treaty, the legacy industry is doomed, so it should come as no surprise that the undead keep haunting us. And, as Zittrain says, “You can get fatigued, you can get exhausted again and again trying to beat this back in every form.”

But remember: Vampires hate sunshine.

/Steve/

And that’s why they call it the sausage factory

Whether initially uttered by Bismarck, Saxe, or Johnson it bears repeating: Laws are like sausages. It’s best not to see them being made.

The Cybersecurity bill that failed Thursday to pass the Senate is an excellent example of ugly lawmaking. I’m not talking about the important debates over privacy vs security or regulation vs innovation; these might actually have been illuminating if carried out in the right spirit. When the bill gets re-introduced — as it surely will — let’s insist on an honest assessment of these issues and reject any arguments containing the word “crisis” or referring to trillions of dollars of losses due to cybercrime. (Let’s banish “cybercrime” from the vocabulary while we’re at it.) Let’s recognize that vendors of security systems have their share of expertise to bring to the table, but also a vested interest in scaring the crap out of a technophobic public and armies of lobbyists to carry their agenda to Congress. Let’s be sure to listen at least as carefully to people like Bruce Schneier, whose clear-eyed message is “Trust and reputation trump technology”. Or Cato’s Jim Harper, who observes that Cybersecurity will improve no matter what Congress does.

So, yes, the weeks of FUD-filled flapdoodle preceding the fatal filibuster were ugly, but worse was seeing the bill hijacked for use as a pre-season Christmas tree by zealots of the left and right for the display of opportunistic ornaments. Whether gun control from Senators Schumer and Lautenberg or abortion limits in the District of Columbia from Senator Lee, these amendments display a cynicism that helps explain why public approval of Congress is at an all-time low.

Let’s do better next time.

/Steve/

Why is the RIAA like a drunk under a lamppost?

You know the joke, right? A man sees his friend, obviously drunk, on hands and knees under a lamppost and asks what he’s doing. “I lost my car keys,” answers the souse. The man looks around and says, “Isn’t that your car down the block? Why aren’t you looking there?” And the drunk replies, “Because the light is better here.”

For years, the RIAA has been telling us that the Internet is destroying the music business. For a long time it was P2P file sharing. More recently the menace is the cloud and bit lockers. To combat the online enemy, they’ve sued deceased grandmothers, distributed spyware-laced CDs, arm-twisted Congress for ill-conceived legislation, and enlisted ISPs in a massive program of extra-legal coercion. Like a moth to the flame, the RIAA has been besotted by the Internet lamppost, and yet their own statistics point in a totally different direction.

A few days ago, TorrentFreak wrote about a leaked internal RIAA confidential report from NPD that contained this analysis of music acquisition:

You have to be pretty drunk to miss the sobering implications:

• In just one year, the P2P problem decreased from 21% to 15%, which is a reduction of more than one-fourth. Someone should be firing off skyrockets and celebrating success.
• While unpaid distribution through bit lockers increased from 2010 to 2011, the total unpaid Internet-based percentage still declined from 24% to 19%. Again, if the goal is to defeat the Internet, someone’s doing something right.
• But the elephant in the room — apparently not pink, or the RIAA might see it — is that unpaid music acquisition has relatively little to do with the Internet. The categories of unpaid distribution based on in-person exchanges dwarfs online activity by more than a factor of two, and the disparity is increasing (44% vs 24% in 2010 and 46% vs 19% in 2011).

As ITworld said, “If you want to blame someone outside the music industry for its demise, you might as well blame mix tapes.” And this is hardly a new development: In 2007, the New York Times reported another NPD study attributing 37% of all music consumption to social ripping and burning among friends. The technology disrupting the legacy music business isn’t broadband, it’s flashdrives.

Of course, the real answer to the music industry’s woes is a new business model, one based not on monopoly and artificial scarcity, but on the public’s love of music and their willingness to pay reasonable prices for quality content conveniently delivered. There’s no shortage of articles and studies supporting this idea and explaining how it’s already happening. My favorite is The Sky Is Rising!, by Michael Masnick and Michael Ho.

Unfortunately, the RIAA shows no interest in sobriety, refusing all advice and all offers of treatment. Look for them under a lamppost near you.

/Steve/