YouTube Notes That Free Music, With Ads, Pays As Well, If Not Better, Than Paid

from the those-digital-dimes-add-up dept

One of the more frustrating things about watching people declare certain things as "fact" in the tech world is the failure to recognize the rate of change and trends as they go. For example, for years, people dismissed the idea that music on YouTube could effectively be monetized if it was available for "free." And yet, now YouTube is noting that free music can actually pay just as well as paid music services, and the trend certainly suggests that the money from the free music on YouTube is growing much faster in its earning potential than any paid service. Of course, how long will it take for the major record labels to recognize this. Warner Music has already declared that it won't do any more free streaming deals. On top of that, the rumors about both Spotify and Google Music in the US have all been about how the labels don't want to allow much free music to be offered. How many times does it need to be explained to record label execs that "free" does not necessarily mean "no money," and when done correctly, it can actually mean "more money."

Filed Under: business models, economics, free, music, streaming, youtube

A Key Myth That Drives Bad Policy: Stronger IP Laws Mean More Creativity

from the debunk-it dept

Ars Technica has an article highlighting Rep. Marsha Blackburn's "conservative tech policy goals," which has a heavy focus on ramping up intellectual property laws and enforcement. Of course, I don't see how that's any different than the "liberal tech policy" these days. Of course, this reinforces the general point that intellectual property issues are not partisan, as both major parties seem to be beholden to the interests of those who abuse IP laws.

However, as Ars demonstrates, Blackburn makes a fundamental economic fallacy in her reasoning -- and it's this fallacy that seems to be made over and over again in debates about intellectual property:

Proposition 1: The ascendant economic sector is the Creative Economy

Proposition 2: The primary commodity in this economy is intellectual property.

Proposition 3: The Creative Economy thrives online, in what is a unique, prosperous, and until recently free marketplace.

The mistake is thinking that "intellectual property laws" are the same as creative output. It's a nefarious fallacy that we see all the time. It leads to the false claim that "more IP = more creative economy." And yet, the final point in the list kind of highlights the fallacy. In fact, studies that looked into the reasons why creativity has thrived online found that it was often the absence of strict IP enforcement that resulted in such a free and open marketplace.

Furthermore, the whole basis of this line of thinking is to ignore that much of what has made the internet valuable is not that it's a broadcast medium for professional content, but that it's a communications medium, built around sharing content and speech. As Ars properly notes:

It results in a view of tech policy that is all about increasing the protection for intellectual property with little concern for the important connectivity, civic participation, and access to knowledge the Internet also provides--think e-mail, the robust political debate at online blogs, and Wikipedia, none of which need "stronger" IP protections.

It's really quite unfortunate that so many of our elected officials, no matter what their political party, seem to have fallen for the same fallacy, that seeks to turn the internet into the next version of television, rather than focusing on what the internet actually does well.

Filed Under: economics, economy, intellectual property, marsha blackburn

China's Patent Strategy Isn't About Innovation; It's An Economic Weapon Against Foreign Companies

from the waking-the-wrong-giant dept

John Bennett points us to an article in the NY Times that claims to be about how China is gearing up to be an innovation powerhouse rather than just known for "copying." Of course, the actual focus of the article is about how China is trying to get a lot more patents. In fact, we covered this very issue back in October, highlighting how China has set an "innovation policy" that appears much more focused on getting more patents, rather than increasing innovation. There are, of course, some people who still think that the number of patents is a proxy for innovation, but this claim has been debunked so many times, it's just kind of cute when people still bring it up.

So, could it be that thanks to sustained US pressure on China to "crack down" on infringement, that China has suddenly come to believe that patents equal innovation? Last month, just before some diplomatic meetings between the US and China over trade issues, US officials did their usual misleading grandstanding about how China doesn't do enough to "protect" US intellectual property. And, in response, Chinese officials did their usual song-and-dance about how they're really serious about intellectual property now, and we should stop worrying.

Of course, as we've pointed out, China seems to be much more aggressive with intellectual property lately, but not in the way the US wants. That is, it's been using patent and copyright laws to make life more difficult for foreign companies, specifically US companies. And, in reading through the details of that NY Times article above, it looks like they're planning to do more of the same.

The strategy that's being described (get a TON more patents in China and all around the rest of the world) is not a strategy for innovation. It's a strategy to stop others from innovating. It seems that China may understand patents a hell of a lot better than even officials in the US. And, incredibly, US officials seem to be falling for it. The Chinese must be laughing with glee to hear USPTO director David Kappos naively declare that:

"The leadership in China knows that innovation is its future, the key to higher living standards and long-term growth," Mr. Kappos says. "They are doing everything they can to drive innovation, and China's patent strategy is part of that broader plan."

No, they're not driving innovation. They're seeking out weapons to use against foreign companies, as they've been doing for the past few years. That such an obvious move is totally missed by someone like Kappos suggests the level of ignorance of our own patent officials.

The US has taught China well how patents can be used as a weapon to hinder innovation, and it seems clear that China's latest strategy is to use patents as an economic weapon. It's not about improving innovation at home. The Chinese will continue to copy and ignore patents whenever it wants and whenever it believes it will be helpful to the local economy. But it will seek to stymie innovation around the globe by using patents as monopolies that can set up both tollbooths and huge hurdles for innovation from foreign competitors. And the US is playing right into this strategy by believing that patents, by themselves, are some sort of indicator of innovation and pushing China to "respect" patents even more. It's not hard to see how this is going to backfire badly on the US, including the companies who have urged on this strategy.

Filed Under: china, competition, economics, innovation, patents

How Do You Measure The 'Benefits' Of Copyright?

from the evidence-based dept

One of the major problems we have with the way copyright law today is developed is how much of it is faith-based -- with supporters insisting that more stringent copyright law is obviously "better," without presenting any evidence to support that. The history of copyright law is filled with examples of this sort of argumentation in favor of stronger copyrights. Thomas Macauley famously (and quite eloquently) argued against such things in the UK House of Commons 160 years ago, and his words still stand today. Here are just some brief excerpts, though the whole thing is worth reading:

I believe, Sir, that I may safely take it for granted that the effect of monopoly generally is to make articles scarce, to make them dear, and to make them bad. And I may with equal safety challenge my honorable friend to find out any distinction between copyright and other privileges of the same kind; any reason why a monopoly of books should produce an effect directly the reverse of that which was produced by the East India Companys monopoly of tea, or by Lord Essexs monopoly of sweet wines. Thus, then, stands the case. It is good that authors should be remunerated; and the least exceptionable way of remunerating them is by a monopoly. Yet monopoly is an evil. For the sake of the good we must submit to the evil but the evil ought not to last a day longer than is necessary for the purpose of securing the good....

... consider this; the evil effects of the monopoly are proportioned to the length of its duration. But the good effects for the sake of which we bear with the evil effects are by no means proportioned to the length of its duration. A monopoly of sixty years produces twice as much evil as a monopoly of thirty years, and thrice as much evil as a monopoly of twenty years. But it is by no means the fact that a posthumous monopoly of sixty years gives to an author thrice as much pleasure and thrice as strong a motive as a posthumous monopoly of twenty years. On the contrary, the difference is so small as to be hardly perceptible. We all know how faintly we are affected by the prospect of very distant advantages, even when they are advantages which we may reasonably hope that we shall ourselves enjoy. But an advantage that is to be enjoyed more than half a century after we are dead, by somebody, we know not by whom, perhaps by somebody unborn, by somebody utterly unconnected with us, is really no motive at all to action...

The principle of copyright is this. It is a tax on readers for the purpose of giving a bounty to writers. The tax is an exceedingly bad one; it is a tax on one of the most innocent and most salutary of human pleasures; and never let us forget, that a tax on innocent pleasures is a premium on vicious pleasures. I admit, however, the necessity of giving a bounty to genius and learning. In order to give such a bounty, I willingly submit even to this severe and burdensome tax. Nay, I am ready to increase the tax, if it can be shown that by so doing I should proportionally increase the bounty. My complaint is that my honorable and learned friend doubles, triples, quadruples, the tax and makes scarcely and perceptible addition to the bounty.

But, that, of course leads to the question of just what is the benefit that copyright provides. If you talk to many of today's copyright system supporters, they will claim the benefit (or even the entire purpose) of copyright, is to provide remuneration to creators. That, of course, ignores the basic history of copyright law, but even if we assume this is true, then copyright does not seem to serve that purpose. After all, very few content creators get remuneration for their creations, and among those who do, fewer still get enough remuneration to make a living.

In discussing how copyright law might be rethought, Cory Doctorow does a nice job pointing out the extremes which disprove the common claims of copyright. After all, he notes, if copyright is about helping content creators make a living, then the "best" solution would be to simply award content creators a living wage. So arguing that copyright is designed to serve that purpose is misleading. Similarly, in measuring the overall impact of copyright, you can't simply add up the aggregate amount made from copyright -- as some copyright system defenders love to do with the oft-cited $1.52 trillion dollar number. Doctorow again disproves that as the proper measuring stick, by again taking it to the extreme: if only one person were to make all that money thanks to copyright, no one would think that was a good program.

So, how do you judge the benefits of copyright? Cory's suggestion is the following:

In my world, copyright's purpose is to encourage the widest participation in culture that we can manage -- that is, it should be a system that encourages the most diverse set of creators, creating the most diverse set of works, to reach the most diverse audiences as is practical.

While this sounds nice, I still don't believe this is the proper way to measure copyright, either. After all, one could easily take this to the same extreme and note that if we get the widest participation but, in doing so, it creates disincentives for great artists to create their works, is that the best system? I'm not convinced that's the case either. This is also why I think Cory's piece, which starts out so promising, goes somewhat askew at the end, in proposing a blanket music tax for file sharing -- an idea that I believe is actually quite a bad one due to serious unintended consequences.

So I would posit that the way you judge the "benefit" of copyright is the way economists judge such things: you look at the aggregate marginal benefit across all stake holders. That is, what is the marginal benefit to everyone in society from a specific change to copyright. Does it increase output but decrease consumption? Thus, you should be looking at not just if it makes artists better off, but by how much, and whether or not it makes others better off and by how much. This may not be easy to measure, but it is how to best think about the impact of changes in copyright law. Look at both the increases and decreases in "benefits" to everyone in the ecosystem and see which maximizes the overall societal benefit.

This is also why I disagree with Cory's concept of "balance" -- a concept I have argued against in the past. If you are striving for "balance," you are arguing for what everyone must give up. Yet, if you are looking for the greatest marginal benefit, you are seeking the result where you are maximizing overall social benefit -- meaning, you are increasing opportunities for content creators to create and to make money, while at the same time increasing the social benefit that others can get out of their art by consuming it, by sharing the experience associated with it, by building on it, etc.

The goal should not be to "balance" what needs to be taken away or to just focus on one side of the equation (artists or "participants"), but to seek out what policies would actually maximize the marginal benefit to all.

Filed Under: benefits, copyright, cory doctorow, economics, licensing

Irony: Book About Recording Industry's Mishandling Of Digital Priced Higher As Ebook Than Physical Book

from the that's-saying-something dept

A few weeks back, we noted that book publishers apparently simply did not learn from the mistakes of the recording industry -- specifically pointing to DRM and (more importantly) the fact that they've started pricing ebooks higher than physical books. Now, in a moment of supreme irony, Copycense (who has been highlighting various ebooks priced over corresponding physical books) is noting that Steve Knopper's excellent book Appetite for Self-Destruction (subtitled "The Spectacular Crash of the Record Industry in the Digital Age") is one of those books. Indeed, Amazon shows the ebook priced at $17.99, while the paperback is $11.53 from Amazon (and available new from others at $7.50 or used at $4.42).

If you go to the ebook page itself, Amazon clearly states, "This price was set by the publisher" (a clear response to complaints about the rapidly rising price of ebooks lately). It kinda makes you wonder if the decision makers at Simon and Schuster even read the book they're pricing? They might want to crack open a used copy of the paperback (it's cheaper) to learn why not understanding digital, and therefore thinking you can price digital things super high, is not the smartest move...

Filed Under: business models, digital, ebooks, economics, pricing

When A Humor Site Understands The Implications Of Abundance Better Than The 'Experts'...

from the nicely-done dept

A whole bunch of you* sent over the article from humor site Cracked, all about scarcity and abundance in economics. Wait, what? A humor site? Yeah, a humor site. Of course, they don't officially claim it's an article about scarcity and abundance in economics (though, they come close). Instead, in true linkbait-fashion it's called "5 Reasons The Future Will Be Ruled By B.S." Nicely done. Then, it focuses on the idea that the future can be described as FARTS: Forced ARTificial Scarcity.

That, of course, is the kind of thing we talk about all the time, and damn these Cracked guys, they actually make it funny:

Remember the debut of Sony's futuristic Matrix-style virtual world, PlayStation Home? There was a striking moment when the guys at Penny Arcade logged in and found themselves in a virtual bowling alley... standing in line. Waiting for a lane to open up. In a virtual world where the bowling alley didn't actually exist. It's all just ones and zeros on a server--the bowling lanes should be effectively infinite, but where there should have been thousands of lanes for anybody who wanted one, there was only FARTS.

The key point, raised at the beginning of the article, which is the point we've been trying (and most likely, failing) to make for years, is that this isn't just about music and movies. Issues of abundance where there used to be scarcity is going to impact all sorts of industries, even beyond what many people expect. Or, as the folks at Cracked explain:

Which brings me to an amusing story. In the last few decades, thousands of babies in Third World countries have died from contaminated baby formula. Wait, did I say amusing? I typed the wrong word there. Anyway, what happens is the mothers mix the baby formula with contaminated water, because sanitation is poor. So why the hell do the mothers feed their infants poison formula when they can just produce milk, for free, from their own bodies? The answer is that they do it because the manufacturer of the formula, Nestle, ran lots of ads telling them to.

If you want to know what the future looks like, there it is. The future is going to hang on whether or not businesses will be able to convince you to pay money for things you can otherwise get for free.

Some of you think I'm about to talk about file sharing and DRM and the evil record labels. But that's just a teaser of what's coming. The world has changed. All the rules we were trained to believe about society from birth until now are about to go out the window.

In other words, get ready to learn how to "compete with free." Of course, it turns out that it's really not that difficult. They also do a bang up job walking through the basic thought process that goes into the steps down the road of abundance:

An ebook sold to a library will thus delete itself out of existence after a year, or after X number of times it had been lent out. This is a big source of controversy between publishers and public libraries, maybe because both of them know they've found the loose thread that can unravel all of society. After all:

A. Why can't the library just buy as many digital copies as are needed for the customers, and keep them forever, if they don't naturally degrade?

B. Wait a second. It's just a digital file. Why not just buy one copy, and just copy and paste it for every customer who wants to read it?

C. Wait a second. Why do you need the library at all? Why can't a customer just buy a copy from the publisher and "lend" copies to all of his friends?

D. Wait a second. If no printing and binding needs to be done, why do you need the publisher? Just buy it directly from the author.

E. Waaaaait a second. Why buy it? Once the author makes one copy available, why can't everyone just grab it for free?

So, the article's author, David Wong, concludes, the future of pretty much all commerce is going to be about marketers trying to convince you to buy stuff that you can get for free anyway, and when he notes that you probably think you're too smart to fall for that, he points out that you probably have already, and goes about listing just a couple of examples on his own desk, such as bottled water, Windows on his computer and Excedrin pain medication.

Now, I recognize that it's a humor piece, and not meant to be taken that seriously, but since it makes some good points in a humorous manner, I do want to push back (not in a humorous manner) on some of the points made in the article. First up, I'd argue that what he's talking about isn't really "forced artificial scarcity" at all. Forced artificial scarcity is when the laws are set up to artificially create the barriers that leave you little choice to buy. What he's talking about isn't forced, but voluntary -- and that's cool. And it's also not artificial. The reason people buy things, even when there are free alternatives is because of some very real scarcities, such as convenience, trust, reputation and patronage. So, for example, when he talks about buying Excedrin over the generic, he's paying for a real, not artificial scarcity (and certainly not forced). He's paying extra for the very real scarcity of brand comfort and trust.

Separately, he exaggerates (yes, yes, I know, it's a comedy piece, and exaggerating is how comedy works, but I'm the idiot trying to pretend there are real lessons in it, so hear me out) the jobs "lost" due to these changes. The jobs change, certainly, but they're not necessarily lost. And that's because with each abundance, all kinds of new scarcities are created as well. Historically, as industries defined by scarcity move to abundance, the new scarcities tend to create even more new jobs. Now, it's true that it's not always easy for those in the old jobs to make the switch to the new ones, but almost always other new jobs do open up (which were often more lucrative than the old jobs). Remember when automated phone switching was going to put all those operators out of work? Except, yeah, that didn't happen. Instead, automated switching created tons of new jobs, such as call centers, and led to new innovations (like the internet) that created even more new jobs.

But, yeah, those are finer points to nitpick in an otherwise quite enjoyable piece on the economics of scarcity and abundance. And, now, I'm left wondering why I don't go out and hire someone who's actually funny to write about the various important issues we like to cover on this site...

* And despite so many of you sending it in, we already knew about it by the time you did. That's because hidden in the middle of the article there, Cracked links to our story about libraries fighting with publishers over ebooks. And, despite the fact that this is the sort of link in the middle of a long story that people normally ignore, Cracked appears to get more traffic than Google and Facebook combined, and so even when an infinitesimally small number of those readers chose to click on that obscure, boring-sounding link in the middle of such an article, it shows up prominently in our log files, making me wonder who cracked Cracked to add a link to Techdirt and what could I ever do to get that sort of traffic to an article on the economics of abundance and scarcity?

Filed Under: abundance, economics, scarcity

How Many Logical Fallacies Can You Make In A Single Column Defending A Paywall?

from the let-me-count-the-ways... dept

Recently, the Boston Globe (owned by The NY Times, so it was hardly a surprise) announced plans for a paywall of sorts. I say "of sorts," because the paper is actually creating two websites, one of which will have a paywall and one that won't. Apparently, Boston.com will cover local news, sports and weather -- and will remain free. Meanwhile, BostonGlobe.com, which will carry news, feature stories, commentary, analysis, photographs and such will have a subscription fee. Not that I think a paywall for either one makes much sense, but if they had to have a paywall, it seems like this setup is backwards. After all, it's the in-depth feature stories and commentary that are more likely to attract a "drive-by" audience from the web -- the sorts of people who will never pay a subscription fee to see that content. Whereas that local info may be more difficult to get elsewhere, and targets locals who would value content more on a regular basis enough to pay a subscription fee (maybe...). So that had me a bit confused.

That said... what really got me confused was a column celebrating the decision by Boston Globe columnist Brian McGrory. It seemed to get so many things wrong, that it made me wonder if this was the sort of "commentary" and "analysis" the Globe is hoping people will pay for. Let's go through some of the mistakes.

Seriously, for the better part of the last decade, every high-brow thinker in the new media business has condescendingly repeated a phrase that is somehow as insidious as it is inane: Information wants to be free.

Except that's not true. Point me to "every high-brow thinker in the new media business" who says that. As Cory Doctorow recently pointed out, it is a phrase that seems to almost only be used by those condemning the "new media thinkers," to mock them for suggesting such a crazy thing. The problem is, no one seems to be able to find those thinkers who do say "information wants to be free." Even the original quote, by Stewart Brand, isn't that "information wants to be free." The full quote is:

"On the one hand information wants to be expensive, because it's so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other."

It is true that many folks -- myself included -- think that plenty of information will be free based on the economics, and that it's important to understand the economics to recognize which content will be driven towards free, and how to properly use that to your advantage -- but I'm not aware of any (respected, at least) "new media thinker" who simply claims "information wants to be free." In fact, we've said the same thing that McGrory says in retort: Information doesn't want anything.

So why must McGrory set up the strawman?

Trust me, people, information really doesn't care if it's free or paid. I asked it. It said it just wants to be read and appreciated. As a matter of fact, every half-wit who has ever uttered that absurd slogan should be lined up on Morrissey Boulevard and forced to watch an endless loop of cute kitten videos on YouTube. This is the information that wants to be free, and free is exactly what it's worth.

Ah, the fallacy of cute kittens on YouTube. As if that's the only content that's free online. Never mind the vast databases of information -- much of it valuable that's widely available "for free." Hell, let's move away from the internet, and look at broadcast radio and television -- both of which employ the same basic business model as much of the free content on the internet. Did that get reduced to an endless loop of cute kittens? But because some guy who has a column doesn't like some cute kittens on YouTube, it's "proof" that free content on the internet doesn't work. Did you know that the printing press is used to print some incredibly awful books? According to McGrory-reasoning, that means that nothing produced by the printing press has any value.

And while we're at it, I sincerely admire all the Internet whiz kids in scarves and black-rimmed glasses who've taken up shop in the Globe building and helped make Boston.com one of the most widely read newspaper websites in the country. But enough talk about the 6 trillion page views every morning. Until and unless the website can support the army of reporters and editors who make it unique, then it has yet to be a true success.

Sure, but why are you blaming the "internet whiz kids," when it sounds like the problem is the people upstairs in the suits who failed to properly monetize the traffic.

This whole mess came to be because, years ago, some lunkhead in some newspaper front office made the decision to give stories away for free on the Web while continuing to charge for the paper, the assumption being that the windfall in digital advertising would make it all worthwhile. Just about every newspaper in America timidly followed suit.

Ah, the myth of "the original sin" of newspapers. Of course, it's not true. Some newspapers did try to charge. And they failed, because no one would pay. It wasn't "some lunkhead," it was competition and people realizing that if they charged, and their competitors didn't, they'd fail. By the way, that hasn't changed today, so beware the newspapers that think they'll get away with charging.

I'm no economist, but I believe we ended up being the only business in the history of commerce to give our product away for free one way and charge another.

Yes. I mean, other than music, which has done that for a while (listen free on the radio, buy the CD). Television lets you watch shows for free on TV, but sells the DVD. What else? Hell, right inside newspapers, comic strips were given away "for free" (with the newspaper), but top comic strips still made a ton of money on books (and merchandise). There are plenty of cases of products given away for free in one area and sold in another.

Then everyone acted perfectly shocked that paid newspaper circulations plummeted while free views on our websites soared. Picture these executives scratching their beards and saying, "I can't believe they're taking it for free."

I get that he's trying to be funny, but it's worth noting that circulation for newspapers started plunging long before the internet came along, and he conveniently pretends (incorrectly) that this was all in a vacuum. That if newspapers hadn't gone free, people still would have paid... not that competitors would have shown up and taken the traffic happily for free.

Yesterday's announcement was a game-changer to all this, a better-late-than-never victory for those of us who believe we should have been charging all along. Readers will still get a choice. Boston.com will remain free, with news updates through the day, but sometime next year Globe stories will live and hopefully thrive on a paid site, BostonGlobe.com.

Where you can get completely clueless commentary like this!

Free doesn't begin to pay for the expensive journalism that's produced here. Free doesn't pay for reporters who keep public officials and major institutions honest, and expose them when they're not. It doesn't pay for the best critics in the country, as we have. It doesn't pay for some of the best education reporters, the most attuned environment and public health reporters, sophisticated political reporters, tireless sports reporters, sharp financial reporters, and the restaurant critic who keeps chefs on their toes.

Free doesn't fund stories that expose corruption in the state's Probation Department, or lead to an overhaul of the pension system, or cost the House speaker his job. Free doesn't shake the Vatican to its core.

Say it with me again for the slow folks still catching up: giving away something for free does not mean you don't make money. The whole point of giving away content for free online was to make money elsewhere. Now, it may be true that The Boston Globe isn't very good at making money elsewhere, but that's not the fault of "free." It's the fault of people doing a bad job with their business model.

And whether or not "free" pays for all those things, one thing it has done? Made sure there's no good reason to pay the Boston Globe anything if they're going to spend it on clueless columns like Brian McGrory's.

But the bigger point is that newspapers have almost never been paid for by subscription fees. Today's subscription feeds don't even cover the cost of newsprint and delivery. In fact, you could argue that selling a newspaper at the price that many newspapers do today makes even less sense than giving it away for free online, because the margins are even worse directly for the paper. But the physical product makes it up (mostly) via ad revenue. The online ad revenue hasn't matched the offline one yet, but that doesn't mean it will never get there. It also doesn't mean that there aren't other interesting business models that newspapers can use. But slamming "free" isn't the answer. It's not even asking the right question. It's just wishful thinking.

Filed Under: boston globe, economics, history, paywalls

Yet Another Example Of Creativity Exploding Without Copyright Law: Football Plays

from the the-no-copyright-offense dept

The theory behind copyright, of course, is that such government-granted monopolies are necessary to encourage innovation in a market. The idea is that, without such protectionism, no one would bother innovating, because they'd know that others would immediately copy them. This was based on theory, however, and tragically, many people have continued to assume this theory must absolutely be true. As we've noted in the past, it's this odd "faith-based" approach to copyright law. That's a problem, because every bit of evidence suggests this theory is simply not true. Every time we look at creative industries where there is no or little copyright protection, we seem to find an awful lot of innovation and creativity, where the theory would suggest it doesn't make sense for that to happen. In fact, when we've compared industries across countries where one country has copyright protection and the other does not, those without copyright tend to be bigger, more innovative and more creative.

In the past, we've looked at how the fashion industry, the restaurant industry, the stand-up comedy industry, and even the magician industry all seem to be incredibly creative and thrive without copyright protection. Now, Kal Raustiala and Chris Sprigman, who have been studying this same topic for a long, long time, are highlighting the same thing in an area you might not have considered: football plays. Yes, football plays -- which are not copyrightable. As they note, American football has been filled with creative innovation when it comes to new plays. And, while the faith-based "theory" of copyright suggests that no team would innovate because others would just copy them, reality has shown quite the opposite. Raustiala and Sprigman go through a series of innovations, from the forward pass, to the "west coast offense" to the "zone blitz" to the "no huddle offense" to the "spread offense." Each were massive innovations that effectively changed the game.

As they note, each time there was a new innovation, it was met with "contempt," as others accused teams of "cheating." And, yet, over time, each of these innovations spread across the league, as teams copied them and continue to innovate as well. They point out that someone even did try to copyright a football formation once (comparing it to dance choreography -- which is copyrightable). Raustiala and Sprigman point out that, despite the fact that such plays aren't copyrightable, there's still so much innovation. One key point they make, is that this is an area where a first mover advantage is quite important. Of course, that applies in many other industries today as well.

Towards the end, they make a key point about economic theory, that's absolutely worth sharing:

Finally, the story of innovation in football is tied to a much deeper debate in the economics of innovation. Economists today disagree about the conditions most conducive to innovation. Some, following the ideas of Joseph Schumpeter, maintain that innovation requires shelter from competition -- the firm in a competitive market is hard-pressed to focus on anything but the short-term, and because profits are limited by competition, may lack the resources to innovate. Other scholars, following the lead of Nobel laureate Kenneth Arrow, argue that innovation is best fostered by sharp competition -- firms struggling for any advantage over their rivals are forced to innovate or die. This divergence in views has hardened into a Schumpeterian vs. Arrovian standoff -- and the state of the evidence does not allow us to fully understand yet which view is right.

Intellectual property law, however, is essentially Schumpeterian. The theory of patent and copyright is that by sheltering innovators from competition -- that is, by prohibiting copying of the innovation -- we encourage innovation. But perhaps the Arrovians are right. Football, for example, illustrates innovation occurring in the midst of cut-throat competition. And football doesn't stand alone. Some of the other creative industries we've described, such as fashion and food, look like Arrovian innovators as well.

This is a perfect summary of many of the debates around here (and reminds me why I've never been a fan of Schumpeter and keep one of Arrow's texts on the economics of information on my desk at all times). It also explains why I have so much trouble with today's intellectual property law. It completely assumes a Schumpeterian view on the world, when a significant amount of evidence suggests Arrow's view is the correct one. The one point where I disagree with the statement is the idea that the evidence is not compelling enough in one direction. The more you look, the more it seems to suggest that Arrow is absolutely right on this one, and Schumpeter is -- as with many of his insights -- compelling and thought-provoking, but slightly off in the all important details.

Filed Under: arrow, copyright, economics, football, schumpeter

Once More, With Feeling: Embracing 'Free' Doesn't Mean You Make No Money

from the how-hard-is-that-to-understand? dept

We've gone through this about a hundred times already, but every few months, someone, who doesn't seem to comprehend what's being discussed, jumps up with a "revelation" that people who are embracing "free" are also (gasp) "making money." The latest to walk down this path is Helienne Lindvall, a songwriter and Guardian columnist, who has been writing a series of columns recently that I've been meaning to respond to, since each one seems more confused than the last. I'll start with this one, though, where she mocks a bunch of people, who talk about how to use "free" to your advantage, because they charge speaking fees (and pretty large ones at that). Except, she's making a rather fundamental mistake: no one claims everything should be free. In fact, of all the people she names, I'm pretty sure every single one of them spends time explaining how to use free to help you make money elsewhere.

It's the same point we've made for years. The point of understanding "free" isn't that everything is free, but that you need to understand what makes sense as free, and what doesn't make sense as free. Someone's time -- which is scarce -- is something that it makes sense to charge for because it cannot be copied and distributed freely. Oh, and should I even mention that Lindvall's column, where she insists that the free business model has been proven dead... is available for free? I usually like The Guardian, but Lindvall's work is not up to its normal standards. Free is a part of a business model. That's all anyone's saying. And when you say that it means you do believe in a larger business model, which means making money. I'm always amazed at how people like Lindvall seem to have their brains stop in their tracks when they get to the big 0, and never reach the other side of the tracks where it's explained how you use that $0 to make money elsewhere.

Filed Under: business models, economics, free