Milena Popova: April 2010 Archives

Hi there! I'm Mili. I released a little thought of mine into the wild that is my LiveJournal the other night, and Charlie found it and liked it and very kindly invited me to repost it here.

This post has been two years in the making. I had the insight for it about two years ago and have been meaning to blog about it since then, all the time wondering why no one has twigged this yet, or whether they have and were too scared to say, or whether I just didn't know that they had. Anyway, what with the Digital Economy Bill having become the Digital Economy Act last week, it's about bloody time I get my act together and put this out there.

So, let's have a bit of economics to start with. Because this is what's it's all about - the money, the economic incentives and the economic possibilities; and because I'm an economist by training, though I don't like to admit to it most days.

There's a theory in economics about things called "public goods". To understand the distinction between private goods, public goods and the couple of shades of grey in between, you first need to get your head around two concepts: rival and excludable.

Rival: (Wikipedia seems to call this "rivalrous", but when I were a young economist lass we used to call it rival so I'll stick with that.) A good is rival if my consumption of it diminishes the amount of the good that you can consume. Say we had 10 apples, and I ate one. There would now be 9 apples left which you could eat. If we had one apple and I ate all of it, tough luck, no apples for you. Knowing whether a good is rival or not tells you whether you want to use the market (if I were a good economist that would possibly be capital-M Market ;-) to allocate access to that good. If it's rival, then the market is an efficient way of allocating the good; if it's not, then you might want to think about other ways of getting your good to people. Remember that scary anti-piracy clip at the start of your DVDs which says "You wouldn't steal a handbag"? Hold that thought for a minute.

Excludable: A good is excludable if you physically have a way of stopping people from consuming it. Back to the apples: if they're in my fridge, inside my locked house and you don't have a key, you can't have my apples. (Yes, yes, you could break in. The law provides additional protection here, but ultimately there's probably a better way for you to obtain an apple than breaking into my house, right?) Knowing whether a good is excludable tells you whether you can use the market to distribute the good. If your good is excludable, go ahead and sell it on the open market; if it's not - you might struggle because you can't stop people from just taking it for free.

So. Most of the goods you deal with in your day-to-day life are both rival and excludable. We call them pure private goods. But there's a few things here and there that aren't as clear-cut, and this is where it gets a little messy.

If a good is rival, but not excludable, we call it a common good. In that case, we want to use the market to allocate that resource but it's actually quite difficult to do. Fish in the sea is a good example: my overfishing the seas stops you from being able to fish and leads to long-term damage to fish stocks, yet it's remarkably difficult to stop me from doing it using just market tools.

If a good is non-rival but excludable, we call it a club good. The classic example given in economics textbooks is cable television but I'm going to steer away from that for reasons which will become obvious. A better example for me is a golf course. My wandering around hitting a ball with a stick does not diminish your ability to do the same (as long as there's not thousands of us in the same place), and with a judicious application of fences I can stop you from coming in and therefore charge you money for the privilege (i.e. use the market). Is that the most efficient allocation of golf courses? Not necessarily, but it works, more or less, because they're excludable and therefore we can use the market.

Here's the important part: a good that is neither rival nor excludable is called a pure public good, and the market is neither a practical nor an efficient way of allocating that good. The textbook example here is national defence. I'm in the UK, so are you; the UK has an army which protects us both (Theoretically speaking - this is not about the value or otherwise of the army, kay?), no matter what either of us do. Purely by virtue of being here we benefit from it - there's no way of stopping one of us from benefiting from defence, nor does my enjoyment of this good in any way diminish yours.

So, to recap, for pure private goods, the market is both a practical and efficient way of allocating resources, and that's what we do most of the time. As soon as we move away from the pure private good paradigm, either because our good is non-rival or non-excludable or both, the market ceases to look like a good idea. In practice, what happens is that we try to use technical and/or legislative means to help us approximate private goods when dealing with any type of not purely private good. We can, for instance, make it a crime to overfish the seas, or put fences around our golf course to stop people from overrunning it without paying; we can make it a crime not to pay the tax that contributes to running the armed forces. (Oh and, incidentally, using a public-type good without paying your dues is called "free-riding". It's something economists are obsessed with stopping.)

Okay, enough with the theory. Let's look at content in practice. Remember that little clip at the start of your legally purchased DVD that delays your enjoyment of the film you've paid to see to tell you about how you wouldn't steal a handbag and thus should not steal a movie either? If you've been paying attention you should by now have spotted that these two things (the handbag and the movie) are not alike. If I steal a handbag it stops you from having it; if I download a movie from Piratebay, there is nothing that stops you from enjoying that same movie (either by getting it from Piratebay yourself or by forking out 20 quid at HMV or a fiver at Tesco's). In other words, while handbags are rival, movies aren't.

Hold the rotten tomatoes. I am not saying that stealing a movie is a victimless crime, or that it's not stealing, or that the people who make the movies shouldn't get paid because I can get my movie off Piratebay. What I'm doing is describing the behaviour of movies as goods in economic terms. We'll come to the moralising in a bit.

What's been happening over the last 10 or 15 years is that it's become progressively more difficult to make content (such as movies or music or cable television) excludable. Thanks to progress in technology, such as making the media via which content is distributed cheaper, faster and easier to copy, if I want to watch a movie tonight I don't have to go to the cinema or to HMV to obtain it, I can just stay in the comfort of my own home and download it from the internet. This kind of progress isn't new. Remember how home taping was killing music? Same phenomenon really, but the internet has just scaled it up by a factor of 1 with lots of zeros on the end. In the 1980s, if I bought an album and then made a copy on tape for my friends, there were only a limited number of people I could distribute those tapes to: 5, 10, 100 if I tried really hard and didn't mind forking out money for the blank tapes. Along came Napster, and all of a sudden my copy of The Black Album could be accessed by millions of people at no marginal cost whatsoever.

Remember how, to make public-type goods behave more like private goods, we use technology or legislation? The content distributors made DRM, we cracked DRM, they made more DRM, we cracked it again, rinse, repeat. Turns out technology wasn't very good at this. The other tool in the box is of course legislation. Copyright laws already existed and, let's face it, we'd already been breaking them cheerfully for years (see home taping) before Napster made an appearance - at least in part because copyright legislation isn't fit for purpose (see breaking the law by ripping your CD to put it on your iPod). So the content distributors (distributors, not creators - important distinction) lobbied our elected representatives to tie our hands even more using legislation. The DMCA was born, and more recently the Digital Economy Act. Other countries, too, are reviewing their copyright provisions. There's been a recent government consultation in Canada, and ACTA is on its way. (I trust you can google DMCA and ACTA if you're not familiar with them.)

Here's the thing though: no amount of legislation will put that particular genie back in its box. Or at least no amount of legislation that is either acceptable in a democratic society (Yes, the Digital Economy Act arguably crosses that line already, but it's easily circumvented by technological means and I certainly don't believe we can go much further beyond the line.) or cost-effective to enforce. Content has never been a rival good and recent technological progress has made it, for all intents and purposes, non-excludable. It's time to face the music: Content is a public good.

Here's what this doesn't mean: It doesn't mean content is free (Cleverer people than me have explained why information doesn't want to be free.), or cheap to make (though it can be), or that content creators should not get rewarded for their efforts.

And here's what it does mean: It means that old business models based on content being a club good simply don't work. It means we have to rethink our relationship with content - as creators, as distributors and as consumers. It means that there are a lot of giants in the content distribution industry whose livelihoods (profit margins) are being pulled out from under them faster than they can say "illegal downloads", and they are fighting it. Of course they're fighting it. They've had an incredibly profitable business model for about a century and suddenly they don't. Let's face it, human beings don't like change at the best of times, and we sure as hell don't like it when it means less cash in our pockets.

And here's what it also means: Content creators have direct access to content consumers (see "we have to rethink our relationship" above). There's a myriad of ways to create, promote and make available your content; and those are just the ones we've thought of so far - more are coming. While old industries may be victims of change, the money that previously went to them is being redistributed, creating new industries. For most of us, this is something to get excited about. (And even for David Geffen it's an opportunity to come up with something new and shiny and exciting, if he only took it!)

So what does the future of content look like? The short answer is that I don't know, but here are a few guesses and extrapolations from what I'm seeing already.

There is by now more than just anecdotal evidence that, for certain types of content at least, putting it up for free on the internet will actually increase your sales. Books are a good example here and Cory Doctorow demonstrates this quite nicely - all his books are available for free from his website and he's selling loads of them. (I suspect part of the reason why this works so nicely with books is that we bibliophiles already have a special relationship with dead-tree versions of things, we like to own them, and we like to support the people who create them. It's in the culture.)

Putting your stuff up for free on the internet does two things. Firstly, it helps you reach a wider audience. A lot of people who wouldn't fork out the best part of a tenner on a book or CD will happily download it for free. They might find they like the book or CD, and that might make them pay up, or it might make them recommend it/share it with their friends, and some of them might pay up. Secondly, it allows you to price-discriminate in the most finely-tuned way possible - it allows you to charge every single person who comes across your content exactly what they're willing to pay for it. This is actually a good thing for content creators: it maximises your (the creator's) profits while the consumer pays for the content according to how much they value it - no more, no less. This may mean I get lots more content more cheaply now, or I focus on giving my favourite artists more money - the choice is up to me. (Price discrimination is traditionally seen as Evil by economists who believe in the Market. In many cases it is. In this case... I have yet to see an argument to convince me.)

I think another trend we're likely to see is a move away from big blockbuster type content (bands like Metallica, or the Foo Fighters, movies like Avatar, big-budget TV shows, etc.) towards a wider range of smaller artists. Being a rock star may not make one or two bands a year hugely, astronomically rich, but more artists should hopefully be able to make a living off their art.

We're going to see a wider variety of distribution models. My favourite example at the moment is the just-released Indelicates album which comes as a "pay-what-you-like" download, CD, iTunes type formats, CD plus various levels of extras such as art books, and the super special edition where Julia and Simon Indelicate rock up at your house, perform the album, record the performance and sign over the rights to the master. (I'm thinking that'd make a great 30th birthday present - hint-hint...) Amanda Palmer is also experimenting with different ways of making money, including pay-what-you-like releases and webcasts where she auctions off her finance's daughter. Ditto Zoe Keating. Kickstarter looks like a great way of funding art too.

Consumers' relationship with art and artists will change. It will be a lot more direct. Art isn't the shiny disc that you buy from Tesco's anymore. It's the project that your favourite artist announces on their blog and asks you for funding and posts updates about and that you wait for with increasing excitement. How we find new artists we like will change. I did a little calculation back in February on how much money I'd spent on music over the previous 6 months, and had to stop counting at the 300 quid mark lest I gave myself a heart attack. Of all of the musicians whose music I bought, I'd only discovered one or two through the radio (and that was Radio 4, so they, too, were fairly obscure). One set were street musicians whose CD I bought. A few I'd discovered through other artists I liked (Amanda Palmer through Neil Gaiman, Zoe Keating and the Indelicates through Amanda Palmer, etc.). One CD I'd meant to buy for a while and was prompted by seeing the artist in an episode of a TV series which I'd nabbed from Piratebay. A substantial number I discovered through friends pointing me in their direction and giving me free samples to listen to.

Of course there will be free-riders. Not everyone will pay for the content they download for free, even if they really like it. But those people might point their friends in the direction of that artist. (There's a reason why I'm plugging a bunch of artists in the previous paragraph. ;-) And even if they don't, you know what? That's okay too. As long as there are enough of us willing to pay for our art so that artists can make a living, that's fine. It'll be a bit like public services: some people pay their taxes, some people find all the loopholes, some people claim more benefits than they're allowed. It's not always 100% fair, but in the grand scheme of things, it works.

I think the sooner artists start engaging with their fanbase in a direct way and looking for creative ways to distribute their art, the more successful they will be. Content consumers need re-educating, and those artists who reach out to do that education first will be ahead of the game. Those who hide behind their record labels, sue their fans and see them as the enemy... well, we'll see, but I ain't buying CDs from Metallica anymore - haven't ever since they helped shut down Napster.

The distribution models I've talked about don't necessarily suit all types of media. They work well for books and music, they may not work well for the type of TV and movies that we're currently used to. But we're already seeing innovation in those sectors too (Hulu, or being able to buy individual episodes of series from iTunes). It'll come.

Bottom line: change is happening. There will be winners and losers, it'll be a long and difficult process. But the sooner we collectively stop sticking our heads in the sand and admit that content is a public good, and that that puts some responsibility on consumers too, the sooner we can start figuring out - together, rather than as enemies - what we want the future to look like.



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