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The Economics of File Sharing
Howzer writes "A great Salon article popped up today, and it appears Stan Liebowitz at the Cato Institute is having second thoughts about his paper that was published on May 15. It seems the facts simply don't support his earlier assertion (& the well-known position of all the major recording labels) that downloading hurts music sales. It's good to see this argued from another angle, especially by a guy like Liebowitz."
". . .That's the beauty of the market. That's why it can't get too far afield. If they get every consumer mad at them, they'll be in big trouble."
Are you listening, RIAA? Either the mainstream is starting to realize just how full of it you really are, or this guy didn't get his payola check for the month.
!#@%*)anks for hanging up the phone, dear.
Personally, I have purchased more music since buying a cd burner. My interest in music has increased as well. Now only if the iPod would drop in price.
"I don't think it's selfish, to eat defenseless shellfish." -NOFX
I can tape the song off the radio just like I can download it off the Internet, but I still want to buy, buy, buy.
Why does this not register with label execs, economists, etc.?
Can I bum a sig?
Of course file sharing hurts sales. Just like double tape decks hurt sales. Just like not having a law preventing people from owning two VCRs hurts video sales. Just like photocopiers hurt the sales of sheet music.
Technology changes things. In some ways better, in some ways worse. It changes peoples behaviour, and it changes the machanics of society.
The question everybody should have been asking all along is, "Does it hurt sales so badly that nobody will want to make music?" The answer seems to be an overwhelming NO, so if thats the case, history suggests that we are should tolerate it until it finds its natural 'fit' within social behaviour and the economy. Just because it facilitates illegal behaviour does not mean that this illegal behaviour is going to have a negative impact on the market - and if you think about it, many discoveries, social patterns and values we hold up as examples of our progressive society started up as being illegal behaviour until we came to terms with its perceived threat and realized that many things we perceive as threatening or damaging can be channeled in a positive socioeconomic direction.
"Old man yells at systemd"
I'm sick and tired of people arguing that this doesn't hurt sales
Well thats interesting, but are you going to tell us why? Just because _you_ have bought fewer CDs because of your access to downloaded music doesn't mean others have. Personally speaking I can say honestly that I have bought more music as a result of first sampling it from downloads. Many of my friends do the same.
What I have said here proves nothing. It's just one single anecdotal example, just as your example is.
I'm not saying you're wrong about downloads hurting sales, just that you haven't provided any convincing argument or evidence to back up what you say. "I buy less therefore everyone must buy less" is not enough and doesn't convince me.
-- MartinG To mail me: echo kewyjlcxyzvjfxbqwh | tr bcefhjklqvwxyz
This dude's argument on fair use is also total fucking horseshit, once you realize that it's not about text. Consider the Mona Lisa. To translate fair use as he understands it for text (read a paragraph, retype it) into images, audio, or video, you'd have to repaint the painting yourself or reshoot the movie yourself. Wow, that's great policy, legislate technology back into the dark ages! That's the hallmark of good policy! Bring back the buggy whips! Hey, let's make this whole thing really simple and just shoot those whining academics! Those dangerous intellectuals!
I'm so sick of neanderthals like you requesting that we legislate away the future in order to preserve the questionable past. Go crawl back in your cave, caveman.
Expanding a vast wasteland since 1996.
I'm glad to see an academic who is confident enough to be able to say, "I may have been wrong; I don't know." These days such professors are becoming a scarcity.
He makes a very good point, too; you would expect CD sales to noticeably decline if people were using MP3s as a replacement for CDs. But they're not. The average computer illiterate still finds it difficult to turn an MP3 collection (which, more often than not, is a jumbled mess of files spanning a several directories) into CDs, because they just don't know how to sort them or how to keep track of them. So they keep the MP3s on their computer and buy the CDs for their Discman.
Many (including myself) have bought a CD because they found a few tracks online, but couldn't get good copies of all of them, and they wanted all the songs in the original order. Other people are still buying CDs, but they're buying the ones they can't find online. I know many people who buy into the whole ultra-pop-star fad, but don't buy those albums because they're so easily available online. Instead, they buy music they like that they couldn't find online--and in the end, it's those artists who need to be bought the most.
But the truth is that nobody can tell how much downloaded music is affecting record sales. It's hard to get the recording industry to ever release detailed statistics on what they sell, and when they do release information there are always doubts as to its validity. (They do have to make the shareholders happy, after all.)
Normally I'd rant and rave about how file-sharing is going to be the death (or the rebirth) of the music industry, but I think at this point people have started to realize that on their own. Now it's just a matter of buying popcorn, sitting back, and enjoying the show, because over the next decade or two we'll get to see some of the biggest and richest corporations in the world die a fiery death.
I view the DMCA as draconian. I'm really quite unhappy about it. But I'm not unhappy with digital rights management, narrowly defined to software that keeps you from making copies; that doesn't extend the length of copyright; and certainly doesn't get rid of fair use.
I wonder whether he understands DRM technology. If a DRM locks up a work, you certainly won't be able to go to a library and copy a page to cite in a paper, so goodbye fair use. (He seems to think the analog hole does away with DRM.) And whenever the copyright term is reached (if it ever is), the work will still be locked up--so the DRM effectively makes the copyright perpetual.
Or the stuff i kept and DIDNT pay for, i never would have in the first place.. so no-one actualy lost any revenue...
Just because they didn't lose any revenue doesn't make this not stealing.
>you just won't have your free music anymore!
... audio tapes, MIDI, mp3s .. there will always be free music (and free movies, and free this and that.), dont kid yourself. You'll just need a little program (like the tape on audiocasettes, natch!) to copy your music. Anyhow, I think you implying 'wont have ALL your music free anymore!', where the point of the article is that a little free music never hurt nobody to any degree that it dissuaded them from running a company, turning a profit, etc, nor purchasing CDs for themselves.
... since it would be self-defeating for everybody to cheat out the industry, it wont happen. Furthur more, as more people join one side of the equation, the people on the other side tend to mobilize or compesate for the shift in numbers in some manner. For instance, as file sharing became more common, I contend that some people purchased more of their music than they would have before, fearing that if they didnt support music, there'd be nothing left to fileshare.
But, I've had it since birth
The joke is, if youre Darwinian, you'd recognize that all this technology COULDNT kill the music industry. Why? If we all stopped buying CDs, and EVERYONE copied, the record companies would crumble, musicians would stop publishing music, and there'd be nothing left to download. Social patterns always ensure there's a balance (like, if everyone littered, we couldnt move, if everyone was a conservative, we wouldnt have important liberal influence, if everyone was a liberal, we wouldnt have important conservative influence)
And if one insists that we do put the record companies out of business - really - so what? The whole cycle of small labels getting grassroots support (where people are much less likely to rip off local artists than megapopstars) starts again, and we're out a few hundred thousand guys in suits. boohoo. Music is 5% of the USA's GDP to be sure, but to think all that would come off the GDP instantly assumes that absolutely nobody comes in to take the place of the fallen dinosaurs, and that this collapse happens overnight. Highly unlikely.
"Old man yells at systemd"
Radio has given me 'free' access to thousands of songs, grouped by genre. It may not be entirely free, since there are adverts, but I change stations during commercials (I know, I'm a thief...). If I didn't have access to this 'free' music, I would never get to sample different artists / genres, and wouldn't purchase any of their music. File sharing works much the same. Say I hear about artist 'x', in a review, on the radio, whatever. If I can sample more of this artist's music without forking over $20, that's great. If I like it, I buy it. If not, I don't. This pisses off the RIAA since they've been using this business ploy for years. They hook you with one good song, and never tell you that the rest of the disc is utter trash. They want you to spend your money to find that out. This is how they make money. Downloading music is no different than me going and standing in a record store to preview a disc, except that I get to keep copies of what I download. Mind you, most of them are 128 kbit garbage, but I have them. They're not a substitute for a cd. If these idiots would realize that they're getting free advertising out of this, we could end the nonsense. But they don't want you to find out their product sucks until after you buy it, and that's why they'll fight tooth and nail over file sharing.
do not read this line twice.
I'm sick and tired of people arguing that this doesn't hurt sales. [...]
I don't own a lawnmower. I borrow my neighbours. This affects sales of lawnmowers.
So should they stop sharing of lawnmowers? Yeah probably. Will I be happy about it? Not one bit, but I'll accept it.
I sometimes hitch a lift with a friend rather than use my own car. This affects petrol sales.
Should they stop people hitching lifts? Yeah probably. Will I be happy about it? Not one bit, but I'll accept it.
I often drink water out of the tap, rather than buying it. This affects bottled water sales.
Should they stop people drinking out of taps? Yeah probably. Will I be happy about it? Not one bit, but I'll accept it.
I sometimes think about naughty things, rather than looking at porn. This affects porn sales.
Should they stop people thinking naughty things? Yeah probably. Will I be happy about it? Not one bit, but I'll accept it.
(I'm not sure what my point is. Draw your own conclusions...)
DRM, as I see it, is merely the protection in the software, on a CD or whatever, that would allow micro-payments. It doesn't do this yet, but in principle it could. That's what I view as closer to ideal. They can let you do a lot and you pay a higher price, or let you do only a little in which case you'd be paying a lower price.
I read this with a sinking feeling in my stomach. What do you think he means by "higher" and "lower". In this case, I doubt that the price will be lower than the current cost of music. The record industry doesn't lower prices.
If DRM with micro-payments is succesfully introduced (read legislated) it wont mean that I pay less for music. The record companies will charge me for my copies. They'll charge me for each time I play it. And though initially I paid 99 cents for that song, after a year, I've payed $5 for that one song and I will keep paying for that song in perpetuity.
The record industry has a very bad record (no pun intended) at passing along savings to the consumer. The CD was supposed to make the whole process cheaper, lowering prices for the consumer. But that never happened. Instead, the prices went up (which they justified by saying that new technology costs money) and they stayed up.
So, if they can release music digitally in a way that prevents copying and tracks your use of that music, the price wont drop. It will increase, despite their cost savings on distribution.
sweat
It breaks my pluginses, my precious!
There's your flaw. Isn't it obvious? Some people want the CD. Why? You can hold the CD. It has cover art and liner notes. It has the whole album as the artist (theoretically) wants it. It is in full quality, and can be copied to MP3s if desired. A person can build their CD collection (people enjoy this). You can just go out and buy the CD and listen to it, you don't have to search for it and wait to download it and burn it.
Nobody is donating anything. Many people find these reasons good enough to buy music from their favorite artists. I doubt that even 1% of people who buy CDs based on MP3s they downloaded are doing so for any sort of "moral" or guilt reasons.
mark
If you want to make an apple pie from scratch, you must first create the universe. -- Carl Sagan
Of course, everything is black and white and nothing is complicated. So when the music sales went down in 2001, of course the first recession in years after a long economic boom and a drop in the quality of music, as well as people getting increasingly pissed at the music industry couldn't have had anything to do with any of this. It's obvious what was the real cause. No reason to even consider the possibility of anything else.
mark
If you want to make an apple pie from scratch, you must first create the universe. -- Carl Sagan
My favorite specious argument is that the artists don't get money from their recordings. Too bad. Let me cry them a river while they are passed out on the Green Room floor with a needle in their arm. They should have signed a better contract with the record companies or been entrepreneurial enough to distribute the music themselves. However, P. Diddy seems to be up to his eardrums in Christal. Eminem still has enough cash on hand to bust off caps like its the 4th of July outside his recording studio.
All in all, these arguments supporting theft of music are smoke screens to justify boorish behavior by people that are irresponsible and do not want to respect other's property. File sharing has just brought these people out from under the rock they hid before P2P became king -- I exclude the 5 of you that use P2P networks to gain digital copies of your Frampton "Comes Alive!" LP which you bought in middle school.
Its very simple. If you didn't buy it and you were not given the right to use by the copyright holder, its not yours to use and enjoy on your hard drive. Grow up, get a job and purchase your music so I don't have to deal with poorly planned copy protection schemes that cause my Mac to choke on Celine Dion CDs my fiancee forces me to listen too. If you don't like the method of distribution, contact the business and explain yourself. A smart business that receives feedback from enough customers will modify its business plan to compensate for the demand. If they don't, start up a Geocities web page and bitch -- just don't STEAL!
Maybe Microsoft should just start appropriating GPL-ed code and justify it by saying that they wouldn't have purchased the code in the first place or the price of compliance with the GPL is just too high. That's about the same mentality. Property is to be respected and I surprised that someone from the Cato Institute saying otherwise. They aren't supposed to be communists with their whole property is theft concept.
Strange women lying in ponds distributing swords is no basis for a system of government.
I'm glad you said "mostly" Libertarian because the Cato Institute is the classic example of what I call pseudo-Libertarian.
True Libertarians are opposed to all threats to our liberty, whether they come from other people, from corporations, or from government. Pseudo-Libertarians are willing to accept any amount of threat to their liberties just so long as they don't come from government. In fact, they are willing to support threats to our liberty from corporations and from wealthy individuals if they can imagine that the government action which would protect us from a real threat to our liberties from business could somehow be construed as a government threat.
Eternal vigilance only works if you look in every direction.
Here, effectively, is what Stan Liebowitz has just said.
And I'm done with listening to egomaniacs like Liebowitz. I'll stick to my Magic 8 Ball for my predictions on how DRM and P2P will turn out. It might not be more accurate than chumps like Liebowitz, but at least it doesn't collect a fat fee every time it spouts a random prediction.
If you were blocking sigs, you wouldn't have to read this.
In support of the Pseudo-Libertarian label...
This article gets a positive spin on Slashdot simply because he believes that file sharing isn't really hurting CD sales.
But reading the article further, he merely looks at the numbers, with apparently no attempt to find out what's behind them. Aside from blaming the 5% drop on the recession, he doesn't really dig deeper, looking into the possiblity that maybe filesharing is acting as a try-before-buy, as is often advocated here.
The real corker though, is that this guy comes down squarely, firmly, and uncompromisingly on the side of DRM. Fair use on text? You can always retype a paragraph. Music or video? you can always get fair use by paying some money. Can't privately produce digital content? Blame some other supposedly non-DRM law, without realizing the obvious - that these laws are all part of a Web of Paranoia on the part of the entertainment media industries.
The living have better things to do than to continue hating the dead.
...why this guy is so confused should read Paul Ormerod's book, Butterfly Economics. The book (subtitled "A New General Theory of Social and Economic Behavior") outlines the mathematics which University of Chicago economists broke through the barrier which had prevented others from mathematizing economics.
All they had to do was assume that all agents (that's you and me) in an economic system had an infinite ability to predict the future prices of goods (and they would all have to agree). Now, these economists didn't actually believe this was true, but they hoped further work with the math would allow them to make simpler, more believable assumptions.
And further work did just that. Sort of.
In 1968, it was proven that we could relax those assumptions so that different people could have different opinions about the future state of the world. The only assumption remaining which still flew in the face of common sense: All agents had to have access to an infinite amount of computing power. And it was proven that the math broke down if this requirement was relaxed.
One might expect that this would mean the theory would be thrown out. But one would be wrong. Because orthodox economic theory requires that markets "clear" in this way.
And from this orthodox economists have shown that the distribution of wealth and income which emerges from equilibrium markets cannot be altered without making someone else worse off. Which had implications for economic policy which greatly pleased those who were opposed to certain government tax policies and regulatory policies.
And those people were rich. They funded organizations like The Hoover Institution, The Cato Institute, and Wendy Gramm's Let Enron Rip Off California Institute.
It is taught because before it was disproved it acquired a strong political following, which included politically motivated private individuals who were willing to fund research which produced the results they wanted produced. So organizations like the Cato Institute have to continue to act as if a theory which rests on absurd assumptions is true, even though we know it is not. If they do not continue to so act, they will stop getting money from wealthy conservatives. That is why the absurd theory was never thrown out.
All of this would not make much difference except that an alternative set of theories have arisen, which take advantage of more recent developments in the mathematics of non-linear systems. They make no absurd assumptions, and (though incomplete) they do work. See Ormerod's book for more information.
They new theories do not skew either to conservative or liberal biases. (Ormerod is even more critical of European attempts to micromanage their economies than he is of laissez-faire Reaganism.) One of the results of including non-linear systems into the mix has been the discovery of what is known as the "network effect." Although most of us have experienced the network effect personally, Stan Liebowitz has developed a little mini-career opposing it.
It turns out there is money in this opposition. Microsoft is willing to pay good money for this obvious nonsense. And it fits right in with Cato's nervousness about a competing theory which does not rest on the absurd assumptions theirs requires.
Which explains why Liebowitz has no clue as to why CD sales were up while Napster was booming and are down since it was shuttered. The Napster community was a classic network with people sharing their favorite music with others. Sure some used it to avoid purchasing CDs. But far more were able to hear music they might never have found otherwise. Liebowitz cannot afford to see this since it would cut off a lucrative source of income for him to admit the network effect has such power. But the rest of us are under no such limitation.
When radio came along, record companies said the new technology was so different it would destroy the copyright economy they thrived on; 30 years later they were bribing DJs to play their records. Cassette tapes were similarly attacked. VCRs were supposed to be the end of the movie business; today they are an important part of their bottom line.
Someday we'll probably see congressional investigations of record companies paying on-line music-sharing services to promote their products. And Stan Liebowitz will still be confused about why his absurd assumptions still don't predict real-world results.
Eternal vigilance only works if you look in every direction.
File sharing and Internet radio may start to look like an attractive promotional channel to the music industry, as Clear Channel slowly tightens the screws.
In this presentation, I will show how my new compression method's artifacts are more subtle than the ones made by the excellent Sorenson codec. [Type type type] This ASCII-art representation of a scene from The Matrix is the source that I have started with. Notice how the curly-brace I typed on the right side of the image, is very well-defined and clear.
Now I will show how it looks when encoded/decoded with Sorensen. [type type type] In the ASCII-art representation on the left, look at the loss of detail. The original curly brace is replaced with a square bracket...
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
I believe the reason that we haven't seen a decrease in sales of audio CDs is because of convenience. I have many audio CDs purchased from retailers, many MP3 files downloaded from the internet, and a CD burner. I have copied only a small subset of my MP3 files onto CDs. Why is this?
CD creation is a time consuming process that requires me to purchase consumables (blank CDs). Then I have to keep track of where my CDs are and what is on them. Also, a CD holds a relatively small amount of data(700MB). In short, I couldn't be bothered.
I believe that you will see significant degradation in CD sales when hardware manufacturers standardize on a portable and inexpensive data storage media. This would allow consumers the ability to carry a "data storage widget" (compact flash perhaps..). It would store thousands of songs and plug into home audio systems or car stereos. It could store entire collections on something the size of a matchbook.
The only thing supporting CD sales is the "network effect" of the CD format. Once we achieve an "inflection point" of the presence of standardized portable memory modules and devices that use them, I believe the bottom will fall out of the CD sales market. I also believe that the record companies have foreseen this.
The CD market today survives on the "high viscosity" of data transfer from the internet to audio playback devices. New devices and technologies will lower that viscosity and change the media market forever.
My suspicions were pretty surface, thanks for the detail.
My college exposure to economics left me deeply unimpressed. They make major unwarrented assumptions about human behaviour. My professor waved away my objections by appealing to the law of large numbers.
The theories might be worth something if humans were linear elements, but we are not. Economics seems to be useless for predictions, so it's not really science, but they appropriate the language of science to gain credibility.
-which take advantage of more recent developments in the mathematics of non-linear systems.
Given that economics seems to have a shallow grasp of linear system dynamics, how much of this new book's useage of non-linear systems is really tough scientific thinking, and how much is appropriation of new buzz to get attention?
OK, our friend Leibowitits presents a reasonably convincing argument about file sharing.... file sharing is huge, and we don't see any appreciable change in sales, so something else must be going on. I buy that.
I have to question his credibility just a little bit. No network effect? The term "path dependence" is fairly well distributed through the economic literature, and I can't recall the name, but I once tried to work through a paper on it from someone at the Santa Fe Institute... not exactly a bunch of intellectual lightweights (at the very least as credible as anyone from the Cato Institute). The paper supported the network effect.
The Salon article almost presents Leibowitz as having debunked the concept rather than challenged it. Lots of handwaving if you ask me.
But then again, that's been my experience with econ in general. : )
Libertarianism is rich wolves and poor sheep playing gambler's ruin for dinner.
...over me. Because I choose not to buy his products, I have a competitive advantage over those who do.
But that doesn't tell the whole story. There are many threats that individuals (especially wealthy individuals) and corporations (especially powerful corporations) pose which do threaten my freedoms. Perhaps it is easier for government with its coercive powers, but it is quite common with corporations as well. Those who ignore this by insisting that all threats to liberty come from government do no service to liberty.
If the threat to my liberty is my daughter's asthma, it doesn't matter to me whether she dies because some factory nearby is pumping toxins into the air or because the government forced me to accept socialized medicine which was inferior.
If the threat to my liberty is my inability to market my next-big-thing computer program, it doesn't matter whether it is because the government taxes new businesses too highly or because investors think the idea is so good MS will steal it from me.
If the threat to my liberty is an economic collapse caused by insufficient resources, it doesn't matter to me whether those resources are lacking because of a command economy like Communism or because some corporation has figured out a way to overcharge all the rest for a second-rate product. It doesn't matter whether it's because the government taxed us too much or because the government borrowed too much. If the money is removed from the economy, it doesn't matter if it goes to the Microsoft tax, to the income tax or to buy Treasury bonds. (Actually it does matter somewhat, since these are coming from different parts of the economy. But any of them can harm the economy by starving it of resources.)
Yes, the corporations and the wealthy do exert power through the government as well, but that is not the primary way they threaten my liberty.
Eternal vigilance only works if you look in every direction.
Eternal vigilance only works if you look in every direction.