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Piracy Is a Market Failure — Not a Legal One
Mr.Fork writes "Michael Geist, Canada's copyright law guru and law prof at the University of Ottawa, posted an interesting observation about the copyright issue of piracy. Canada's International Development Research Centre came to a conclusion that 'piracy is chiefly a product of a market failure, not a legal one' after a multi-year study of six relevant economies. 'Even in those jurisdictions where there are legal distribution channels, pricing renders many products unaffordable for the vast majority of the population. Foreign rights holders are often more concerned with preserving high prices in developed countries, rather than actively trying to engage the local population with reasonably-priced access. These strategies may maximize profits globally, but they also serve to facilitate pirate markets in many developed countries.'"
Let's hope that somebody who can actually achieve something in the marketplace actually listens to what Michael Geist has got to say.
Are they sure the current strategy actually maximises profit?
If demand is below the price set by the seller, the buyer will acquire the item through alternate channels where available.
Piracy dropped like a stone when cheap downloads became available. If you want to kill it off entirely, stop charging the same price for media that are new and media that are 20 years old.
ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
This story is based on a Social Science Research Council report.
The said report has already been extensively debated on Slashdot here and here.
In soviet russia the government regulates the companies.
They are claiming that a strategy which maximizes profit globally creates underserved markets which turn to illegal channels to recieve content they cannot purchase legally. In short - either sell it to people at a reasonable price or they'll pirate it from someone who can.
Nope! They are saying that they're trying to maximize profit globally, but are instead leaving money on the table in markets which differ too much from the main ones in which they make most of their money today.
Valve has got an excellent method of dealing with piracy. While not perfect, it does tend to cut back on the "I can't afford it, so I'll just steal it" attitude. You really can't argue price points when you can purchase a 12-game bundle for $20US, even if only half of the games are ones you'd actually play.
They can afford to charge lower prices because they have a great content delivery method, which cuts out the whole packing/shipping process. There is virtually no extra cost for delivering one or one thousand extra copies, and therefore overhead is minimized = profits maximized.
I have to agree, at least in part, with TFA. Proliferate your business in a method economical and accessible to the consumer, and you're far more likely to cut down on piracy. After all, if everybody has your product at a price they're willing to afford, there is no reason for piracy.
What else can happen when an unstoppable force collides with an immovable object?
The flow my girlfriend went through recently when trying to watch a season of a TV show:
1. Checked to see if it was available digitally on standard channels like Netflix and Hulu (it wasn't).
2. Checked Amazon, where it was available digitally, but only per-episode, at a ridiculous price like $3/ep (making it over $100 for the season, more expensive than on DVD).
3. Downloaded torrent.
She was more than willing to buy it, but it has to be easy and reasonable or "other" methods of distribution win.
That is exactly my case. Let me use ebooks as an example. I always payed for my ebooks. From Amazon, Fictionwise and Ebooks.com. Then, one not-so-beautiful day, "export" restrictions started applying to ebooks. Most publishers would simply not allow those shops to sell me ebooks, because I was on a different country. I even talked to 2 of the authors, and both were aware of this, not happy, and trying to fight these measures, to no avail. As a corroborating note, these specific books were not available in my country, through any channels. Be it physical books, translated or not, or ebooks. Harper Collins is the leader of this "geographic restrictions", as far as I can tell. Well Mr. Publisher, I went out of my way to try getting these books legally. I contacted the shops, contact you and contacted the authors. For reference, everyone but YOU responded. Everyone pointed fingers at you.
Alternatively, they could buy the content and not afford the system to run it on?
Certainly people do pirate things they could actually afford, but those college kids also frequently pirate more than they could afford. I've known people that pirated movies, games, and music that would have exceeded their annual income if they actually bought them.
Most, if not all, Western nations completely invalidate such studies given that music is extremely affordable and reasonably priced - and much cheaper than capitalistic pricing would otherwise allow.
Its a societal failure, not an economic failure. Period.
So you have also done a multi-year study to back up your claim. I'd love to see your data, and compare it to Geist's study.
Exactly! Piracy is a victimless crime, like punching someone in the dark.
When our name is on the back of your car, we're behind you all the way!
In Eastern-European countries average salaries are around $600, but there's a highly educated youth, with cheap internet access (around $30 a month), and a lot of free time, and relaxed copyright laws (suing warez downloaders is not legally possible; you can only sue those who make a profit while pirating ).
At the university where I studied, teachers expected students to use pirated Matlab, as they didn't had an academic license program, so they provided intranet warez copies.
At the same time there's strong opensource culture as well.
Firefox usage:
Poland: 42%
Slovakia: 41.2%
Hungary: 40.3%
Estonia:37.3%
(And my guess is that in China hacker groups are government supported.)
"rather than actively trying to engage the local population with reasonably-priced access. "
You mean like high-school and college students without any income?
She was like chocolate when she drank... semi-sweet at first and then increasingly bitter.
Long lineups at the checkout are a barrier; so I just stuff the things in my pockets and head for the door.
So they're not worth worrying about, because they're not and never will be your customers. Look at how much money the indie devs made as compared to what they were on track for without that promotion. Look at all the charity that was helped because of it.
Yes, there are douchebags out there. But the majority of people are decent folk that understand value exchanges. Give them value for their money, and they'll gladly part with it at appropriate price points. Especially if you make it easy like Steam does.
My blog. Good stuff (when I remember to update it). Read it.
You're missing the point. A ferrari is a luxury item. A movie, or a video game, is not. There is no point in charging people more than they can afford for something that's not a luxury. In my country, videogames are twice as expensive as in the US. Very few people buy originals. But movie tickets are 1/3 to 1/4th the US price. Cinemas are always full.
Bottom line: price your stuff according to what people can afford.
*I know there are a lot of people who do not like this term, but I am not currently aware of any other term which brings together all of the various products that can be lumped together under "intellectual property".
That's because they're disparate constructs with completely different purposes that should not be lumped together.
Trademarks exist to protect the public so they know what they're buying.
Copyrights exist to provide incentive for creators to share their works through a guarantee of a monopoly on copies.
Patents exist to convince businesses to share valuable processes from which everyone can benefit.
The problem is that "extremely affordable and reasonably priced" is very subjective. When I was in college with basically no income a $10 cd was not affordable at all. Now that I have a job it is. Reasonably priced is also subjective. To some people $0.99 for one song is not reasonable at all.
The good professor's got a peculiar view of things.
The intellectual property owners have a legal monopoly and the market is inherently averse to monopolies rewarding everyone who figures out a way to undercut the monopolists. Far from being a market failure it illustrates the proper functioning of the market and the role of government in interfering with the proper functioning of the market.
The purpose of copyright, like the purpose of the patent, is to confer a temporary monopoly to encourage the development of worthwhile ideas. That purpose is undercut by endlessly extending copyright into the indeterminable future. It's hard to even guess what that sort of appropriation of the patent system would've resulted in but it would hardly have been to serve the end of encouraging new developments.
Minutus cantorum, minutus balorum, minutus carborata descendum pantorum.
Not so. Glancing up at my games shelf, I count five titles that I bought after having downloaded the pirate version. In some cases, I continue to run the pirate version, since it isn't burdened with cumbersome DRM that requires you to dig up the CD and insert it in your computer before you can play.
Theft is depriving someone of something they would otherwise have had. So piracy can be a form of contingent theft, when you would otherwise have bought the pirated item. Warez I try and like, I buy. There are some cases where I do commit theft, simply because the software is much too expensive for the three or four times a year that I use it. I feel that in those cases I am stealing the value delivered, rather than the full price of the package. If there were a pay-per-use model for these expensive programs, I would gladly pay for the value I actually receive.
We are all cultivators of the economic garden. The things we fertilize with our money are the things that flourish. I like to think most people realize that.
I wonder if keeping multiple formats will actually make it feasible to cater to financially distinct -- yet geographically similar -- markets. For example, sell the DVD for $5, but sell the Blu-ray for $20.
they're trying to maximize profit globally, but are instead leaving money on the table
You phrase that as if it leaving money on the table were an accidental consequence. Its not. It is a deliberate choice.
Because media giants can not effectively control traffic of LEGALLY purchased media, they choose not to sell it at all in poor countries, or sell media at ridiculously high prices, in order not to fuel international markets, undercutting US/EU prices. If you could safely order LEGAL CDs from third world countries for pennies on the dollar, why would you buy at Downtown USA prices?
Sig Battery depleted. Reverting to safe mode.
why not buy the DVDs?
More likely she wanted it *now* and decided that piracy was a permanent solution rather than the temporary 3-5 day solution while her shiny DVDs shipped from Amazon.
Piracy is just the new socially acceptable temper tantrum. Individual consumers (as opposed to collective market forces) have decided *they* get to decide the price and medium and if they don't get their way, they'll just take it for free.
Fine, pirate it, right after you process your order with Amazon. That way you don't have wait to enjoy what you now legally own. Or, why don't you write a check for a price you're willing to pay per episode and send it to the company as a donation?
I'm guessing you and your girlfriend are perfectly content not paying anything ever because the company dared to not have it your way right now.
Work Safe Porn
I would argue that the payment mechanism can also form a significant barrier. Having to create a paypal or other account or enter a credit card number is a barrier. The entering of the information is a barrier, trust of the system accepting the information is also a barrier.
My B.S. detector just exploded.
If your justification for stealing is, too much work to reach for my wallet, you may just be a thief.
Yes, putting a credit card number in to a form is a (very low) barrier. But downloading and installing LimeWire or a Bit Torrent client is also a barrier. Searching warez sites is a barrier. Running something from an unknown source is a barrier. Plenty of folks make it over those barriers. But PayPal is a "significant barrier"? I doubt it.
Speaking for myself, it is just as easy, if not easier, for me to find and download music from iTunes than from Pirate Bay or some other torrent site. But I still get most of my music from torrents.
For newer/mostly independent acts, I buy the music--although usually from Amazon, not iTunes. (I like the physical disk. I'm old fashioned like that.) For the big record corporation stuff, I torrent.
But I'm not going to B.S. like that stuff is hard to find on CD. Or somehow since I bought the cassette 20 years ago I can transfer that license to a modern digital copy. I'm just an a-hole who likes to get stuff for free.
Actually, there's a theory in economics that, while it mostly talks about tax rate vs. revenue, can be applied to price versus profit. The short version is that Price v. Profit follows an inverted parabolic line. There's a sweet spot where revenues are maximized, and it most emphatically is not at the highest possible rate in the graph. The same applies to sales (and in fact, it was in that context that my HS Economics teacher presented it): as you raise the price beyond a butter zone, your profits actually drop because fewer people can afford to buy your product, and either buy the products from the competition or steal it.
https://secure.wikimedia.org/wikipedia/en/wiki/Laffer_curve is a good starting point, though that's the theory as it applies specifically to taxation.
Having a rock bottom price is not going to help if people don't think its worth paying your app. I have no idea what your app is, what its perceived value/quality level is, or what % of an average apps users are pirates, but from my vantage point you need better marketing, or a better app.
I agree pirates are always going to pirate, but having an app that appears to give users a lot of value for their $ would certainly decrease the % of pirates vs. legit customers.
The driving force behind piracy has always been, and will always be, "because we can". People have made unlicensed copies of things since the technology existed not because the original was too expensive, but because piracy was cheaper. Too many middle-class Americans do it for me to believe it has that much to do with cost.
Even if a factor behind piracy is the high price of content, it's self-defeating. Companies have lost the incentive to lower the price of content when sales slow down. People not willing to pay $20 for a DVD can wait for it to come down to $5. But they don't, they pirate, and now the company doesn't stand to sell as many units at $5 than they might have, so they're less likely to reduce the price. One might argue that piracy hurts the tendency to lower prices by removing demand for low-priced content.
120 characters for a sig? That's bloody useless.
What TV show has 30+ episodes in a season ($100/$3)? TV seasons are usually fewer than 25 episodes.
Why not order the DVD? Because she wanted to watch it now? Why not order 1 episode for $3 to watch now and order the DVDs to arrive in a day or two?
Why not go to the store and buy the DVDs now?
This is always the smoke screen that pirates use. I would have bought it. You want $x ? I would have bought it for $x/2 or $x/3. That goes for all reasonable values of x.
Now that she downloaded it, what's keeping her from buying the DVDs right now? She's "more than willing to buy it", right?
This has nothing to do with taxation.
This is simply a supply/demand curve where one side has managed to control the price point via monopolistic means enforced by government. (If they had to pay for their own enforcement apparatus they would quickly lower prices).
As it stands, there is no reason to believe they are selling anywhere near the "butter zone" (what ever the hell that is). There is no evidence they have ever tested lowering prices in selective markets, or lowering price even in developed markets. Not on any meaningful scale. Apple/Amazon proved that 99 cents per song works. But that market was mostly US/EU. World wide, its estimated that 50 cents per song or even 30 cents could make just as much total revenue.
The only people getting raped harder than the consumers are the Artists. Estimates are that the artist makes 9 cents of that 99 cents.
Sig Battery depleted. Reverting to safe mode.
Exactly! Piracy is a victimless crime, like trying to punch someone in the dark only to find there's nobody there.
FTFY. If you punch someone in the dark, the punchee is certainly a victim. If you copy something which you never had the intention to buy, no one is the worse for it.
Mr. Copyright Holder goes to see Mr. Lawyer that is protecting his rights.
- Mr. Copyright Holder: "How's the fight against piracy going Mr. Laywer?"
- Mr. Laywer: "Not good. People are committing more piracy than ever..."
- Mr. Copyright Holder: "Well you see, I've been doing some thinking about this; if we reduce our prices significantly and focus on the quality of our products and remind consumers that when they legally buy our product they also get legal warranty, we should be able in the long run to change the general culture of consumers towards a situation where piracy is met by the general population with disgust rather than with ambivalence. Also, that way we would not have to fork out so much money on litigation."
- Mr. Laywer: "That'll never work. Oh, and by the way; we need more money for litigation."
- roll credits -
"I'm taking this loop off." - Jack O'Neill
And while most politicians are well aware of how extending patent terms would hurt the entire industry and economy, they would be more than happy to extend copyright terms perpetually at the same time. They probably think that copyright balance isn't important, that culture doesn't matter for the economy. But they're terribly wrong. Copyright is no longer just about culture (which IS important whether they like it or not), it's also a huge hinderance to the entire IT sector which grows in importance every day.
Theft is depriving someone of the use of property they already have.
That definition seems incorrect too, ie I could deprive you of the use of your car by refusing to sell you fuel.
Theft is the possession of someone else's property without consent.
Patents exist to encourage publication... otherwise, the oft-overlooked 4th branch of intellectual property - trade secrets - can come into play. Non-transferable, there are mechanisms in the law for their preservation. However, there are no protections from independent discovery. Of course, some trade secrets can retain their value long after a patent has expired.
Your ad here. Ask me how!
That doesn't make any sense at all. Clearly people are willing to pay for the service, or Netflix wouldn't be in business. That doesn't mean that current prices are optimal.
You're missing three VERY important concepts, and that is "impulse buy" and "laziness". I bought a good half a dozen games this week, could I have pirated them? yep, it would have been no problem I'm sure. But like most people I'm a sucker for a sale and frankly at cheap prices it quickly becomes too much of a hassle to pirate and THAT is the point.
The key as in TFA is to hit that "sweet spot" where most will simply consider it cheaper and easier to buy then pirate. the stick NEVER works, because frankly the pirates are smarter than the *.A.As and always will be. it is the classic "smart cow" problem, where all it takes is a single one to figure out how to get through the fence and the rest will follow.
So instead they should be following the Walmart approach, make it cheap, make it easy. For me if the game is under $20 or the movie is under $10 frankly going through the trouble of pirating it simply isn't worth my time. With Amazon, Steam, and GOG I can have a game instantly or at the max 3 days from the time I click to the time the movie or game is dropped at my door, I get all the extras like multiplayer and access to DLC, so why bother?
But the "lets crank the price til it hurts!" model frankly encourages piracy because nobody likes feeling screwed. $50+ for a four hour game? or $30+ for a movie I'd watch maybe once? I just skip them but I can see why a bunch of people would just download them as they simply aren't worth whats being charged and THAT, that right there, is the crux of the matter. Charging the absolute max the market can bear may be business school 101 crap but IRL it rarely makes for maximum profit. look at what Valve found out with L4D, when they found the sweet spot they sold 1100%! more than they did at release!
So in this case it is simply greed cutting off their nose to spite their face. By ignoring there is a sweet spot they are pricing themselves right out of many markets in both the first and third world, and yet again making piracy the better option. Stupid is as stupid does I suppose.
ACs don't waste your time replying, your posts are never seen by me.
I disagree slightly, people will be willing to pay for legitimacy, but they are far less likely to suffer inconvenience for legitimacy. If pirating something is easier than buying it people are much more likely to pirate it than they would be otherwise. This is one of the biggest problems with most DRM schemes and a big part of why Steam is so successful.
I feel like DRM is a special-case inconvenience which is worse than others because the buyer understands that it has no purpose. They know that they are not a pirate because there is a hole in their wallet where the money they paid used to be, but then they get treated like a criminal and are prevented from doing things they have every right to do. Whereas with ads, people understand that there is a reason for it -- it's how they got to watch legitimately without paying.
Of course, what smart people do is find a way to make sure the creator gets an ad impression and is paid by advertisers but without the user actually having to watch the ad. Then everybody wins. (Except the marketing trolls, but ever since they invented astroturf they're officially not people so nobody cares about them -- I'm actually pretty sure that "tivo" is what primitive cultures used to say when they impaled a marketing troll with a spear.)
I think you're overly optimistic. Most politicians haven't even considered the matter of balance, since the lobbyists they talk to haven't brought it up. All they know is that the lobbyists' industries are being ripped off, and we'll lose tons of jobs if this goes on. What possible balance is involved? This is private property we're talking about!
Most politicians are completely unaware of the purpose of copyright and patents. They believe that it's to "protect" the "property" of the recording and movie industries. Because that's what they've been told.
Ignorance killed the cat. Curiosity was framed.
Better pass a bunch of poorly written laws with over-reaching and unforeseen ramifications and egregious penalties anyway. You know, just to be safe.
or else!
I got to say, I agree 1000% with this...if the industry stopped making a big deal about it, and invested in making a better version to avoid piracy, that would solve the problem there.
If a door maker, makes cheap doors that people can just punch and break, does that mean that the problem is people punching and breaking doors down, and robbing you of your house and possessions....or really is it the door manufacturer's fault for making flimsy doors....i never once heard a door maker say...
>"god dang, that's another one this week, ...if only people would not punch doors and break them, we would have a more stable product securing people's houses."
So why is it ok for all these other companies to always blame others....I am not saying it is right for someone to steal....but the definition of stealing is bound to physical objects...when everything we talk about is virtual it becomes a big grey area.....
so fix the problem by coming out with a steel door, instead of balsa wood....add deadbolts to your door, instead of just changing the small door lock....why cant they come up with a better system for music, movies, software, instead of blaming the people that are doing what comes naturally, finding a way to save money.....if they can, they will.....