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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."
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?
My own experiences with free vs purchased music:
Back around 1980, I was a DJ. I had access to a HUGE vinyl library and a high-end cassette recorder -- so I could tape whatever I wished.
Until a year ago I had better online access, and could download whatever I wished. Since then I've moved and my connexion speed went to hell, so I've stopped downloading music.
There have been two periods in my life when I *bought* a lot of music: when I was DJing, and when I had good download access. Conversely, I *didn't* buy any music when I had NO access to free music.
On thinking about it, the reason is simple: when I have good access to free music, I also get to sample lots of stuff I've never heard before, that I can listen to when I'm in the mood to care about it (not just when some crap radio station sneaks a song in between commercials). And I want to own what I want listen to.
Since I've not been able to reasonably download music (26k tops is not "reasonable"), I've not bought a single CD. Coincidence? You decide.
~REZ~ #43301. Who'd fake being me anyway?
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"
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!
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.
...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.