Is a song like a tomato, a waterhole or the air we breathe? And why it matters.

(This is a draft. Will certainly evolve and should probably not figure under the heading of research at it stands today. But as I prefer to write this post in English and because there could be a working paper — let’s go)

I’ve just finished Fisher’s Promises to Keep. Interesting issues. The book looks at the set of legal issues pertaining to two subsets of the entertainment industry — music and movies. As we all know, the Internet is having considerable impact on these; we may argue on magnitude, but there is, and ought to be.

Fisher frames the debate in legalistic prose, examing how the set of laws regulating these sectors should evolve. He makes a credible attempt at trying to consider social interests, and those of the creators. He analyzes three frameworks: strict property rights, regulated industry, compulsory licensing. In a nutshell:

1) Strict property rights would add legal protection over tools such as encryption, to help the industry fight piracy.

He, like many other scholars, warns against negative side effects. To illustrate — a strict unregulated regime would make it possible for the industry to prevent making copies of legally purchased material, such as ripping a CD on your computer to listen to content on your computers, stereo, portable devices and so on. This may or may not be construed as fair use (to wit — iTunes prevents you from freely moving a file purchased on their store to unsupported devices). An extreme side effect would occur if every work were watermarked and every device had to comply with watermarking schemes. In one scenario, you might not be able to make a video at a wedding because the background music is watermarked and the compliant camcorder would not record! 🙂 (I believe this example belongs to Davidson but have to go back to my notes before I can confirm)

2) Regulated industry would enforce copyrights in exchange for a regulatory framework that would maintain and even expand the doctrine of fair use.

3) Compulsory licensing would in effect say that the cat and mouse game of trying to protect content is wasteful and that instead, music and movies should fall in the public domain and creators be compensated by a levy. Such levy could be in the form of an income tax or a consumption tax. the distribution of income would be made on the basis of several indicators.

The merit of Fisher was (2004) to make us more precisely aware of the evolving nature of digital entertainment: music and movies are changing profoundly — they are becoming public goods.

A public good is a good that is non-rivalrous and non excludable. (actually, there are more variants, but let’s keep it as simple as possible).

Non-rivalrous means that I may consume the good without competing against other consumers. This is important. And relatively unsusual. A tomato is a private good. If I eat a tomato, you cannot eat it. It is gone. You and I compete for tomatoes. And because tomatoes are scarce goods, it matters.

Non excludable refers to the fact that sellers can (or cannot) prevent unauthorized usage of the good. Easy for tomatoes to exclude unauthorized usage — until I sell it to you, I will not let you eat it, maybe not even touch it. Once you pay me, do what you want. But for water of air, it is more difficult. Water is (suppose for a moment) in infinite supply such that there is plenty for all and we do not compete for it. If a good is excludable, like a fenced waterhole, we can conceivably assign the management of the water supply to the private sector, because we can charge for the right to access the resource.

Non excludable goods cannot be efficiently managed by the private sector because there is no way to prevent free-riders to access the good. We cannot build fences to prevent the wind to reach anyone. We cannot let the private sector (alone) manage air, because there is no way in which the private sector will be in a position to extract resources from consumers in order to do so.

A long long time ago, things were simple. Artists would earn money through their live performances. There was rivarly (for proximate venues) and excludability (you pay your ticket and you get in). But not much money to be made because the production costs of entertainment were exceedingly high.

A long time ago, mechanical devices made it possible to store and play at will various forms of art (music and, eventually, video). Rivalry and excludability were strong, as if I have a roll, a record, a tape or a CD, you don’t. I can listen and you cannot. We compete for the right to have the token that will deliver entertainment.

And now with the digital media, there is certainly no rivalry. P2P is about sharing. Not exchanging. The market for token has vanished. Unless technology restores excludability and perversely reinstores rivalry.

So, I guess that my take on Fisher is tainted by two perspectives.

First I think that the economics of digital entertainment will dictate regulatory actions, not the other way around. My (naive) understanding of the direction taken by the industry and regulatory agencies is that the drive for strict copyright rules will collapse, has already started to. But I admit that this could be wishful thinking, or that it will definitely collapse in hundreds of years, or never, if we are myopic and condone myopic leadership.

Second I had repeated qualms on what may not amount to details.

On thing concerns the motives of artists. Fisher writes (data and comment here) that artists do not see money unless they sell 200,000 records or more. The vast majority of them. Just a few (maybe?) marginally better will be targeted by the majors for a concerted effort to push them to the level of a superstar. I would argue that this is a different business. There is a market for stars; we can design products to raise resources. Art as advertising.

The other is the utter dismissal of the retail sector. Long, convoluted calculations start with a whooping cut of 50% in consumer spending because that is what retail is charging and the Internet is a costless medium. Wrong on two or three counts. First, consumers paid 100%, not 50% of what they paid. The cash outlay for entertainment is what matters. We have no more indication that consumers are fans of Sony or Universal, than they are fans of Tower Records or Wal-Mart. Second, I would argue that the retail sector does create value. Marketing is about accumulating, sorting, assorting and allocating (Alderson, an old theorist). The point is that better ways to navigate the universe of art improve the consumers’ experience. Third, retailing is not costless.

So, let me conclude for now that I still think that the price of digital entertainment is going to come down significantly, and distribution to increase significantly. My guess would be that subscription schemes will eventually win the day.

What must be fought is the dangerous idea of watermarking everything. Burying watermarking under the guise of social/coop/free only serves to confuse by creating an unlikely coalition between vested interests with foresight, and myopic optimists.

But more importantly, I would argue that the digital entertainment industry can be thought as a collection of waterholes. Supply is abundant. Value can be added and appropriated. The private sector can do it. Better than regulators. And the price of accessing watering holes will come down. Is coming down.  


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