Microsoft Attacks The Open Web Because It's Jealous Of Google's Success

from the stop-it dept

Lots of attention has been paid to the mess down in Australia with its news link tax "bargaining code", and Facebook's response to it, including the eventual caving. So now both Google and Facebook have effectively agree to pay a tax to Australia's largest media companies... for daring to send them free traffic. It's the most bizarre thing in the world. Imagine if every time TV stations ran an advertisement, they also had to pay the advertiser. That's what this is.

However, we should focus in a bit on Microsoft's role in all of this. First, before Google agreed to its deal and was threatening to shut down news links in Australia, Microsoft stepped in and said it would gladly support the law. This was so transparently greedy of the company. Basically, Microsoft has realized that it's failure to actually be able to compete in the marketplace means that it wants to support this kind of law knowing that one of two things will happen: (1) Google will bail out of a market, leaving it open to Microsoft or (2) it'll just cost its competitor Google a lot of money.

The fact that it also fucks with the basic concept of the open web and not having to pay to link doesn't seem to enter into Microsoft's calculus at all. This takes Microsoft back to the shameful era in which it paid some godawful amount of money to political trickster Mark Penn not to help Microsoft better compete, but to simply attack Google like a political candidate. This is classic political entrepreneurship rather than market entrepreneurship. It's a sign of failure, when you're not trying to actually innovate, but simply abusing the political process to hamstring competitors.

But, in this case, it's even worse, because it's not just Google and Facebook that get screwed, but the entire concept of the open web.

And it gets worse. Microsoft seems so positively giddy about how this all worked out in Australia, that it's now taken the campaign global. Microsoft's President, Brad Smith wrote a blog post calling for this policy to be adopted elsewhere. Incredibly, Smith seems to argue that the attack on the Capitol might not have happened if Google and Facebook were taxed this way globally. The whole thing is just... so obnoxiously dishonest. It bemoans the loss of "professional journalism" and blames it all on social media.

But that's garbage. Multiple studies have shown that Fox News was a bigger problem in spreading disinformation than social media. And, remember, that Fox News boss Rupert Murdoch is the main beneficiary of the Australian law. It's literally taking money from the less problematic spreader of disinfo and giving it to the more problematic one. But Smith/Microsoft act as if this is all for the good of society:

The ideas are straightforward. Dominant tech properties like Facebook and Google will need to invest in transparency, including by explaining how they display news content.

Even more important, the legislation will redress the economic imbalance between technology and journalism by mandating negotiations between these tech gatekeepers and independent news organizations. The goal is to provide the news organizations with compensation for the benefit derived by tech gatekeepers from the inclusion of news content on their platforms.

This has been Murdoch's framing all along and it's total bullshit. There is no "imbalance" here because there's nothing to negotiate over. You don't need to negotiate to link. It's a free thing, and as we saw when Facebook pulled its links, and all these news organizations started whining, it showed that those news organizations actually recognize they derive value from the free links. The whole thing is ridiculous.

And Smith tries to frame it as if it's protecting democracy and the American way. That's garbage.

These are now pressing questions for the Biden administration. Facebook and Google persuaded the Trump administration to object to Australia’s proposal. However, as the United States takes stock of the events on January 6, it’s time to widen the aperture.

The ultimate question is what values we want the tech sector and independent journalism to serve. Yes, Australia’s proposal will reduce the bargaining imbalance that currently favors tech gatekeepers and will help increase opportunities for independent journalism. But this a defining issue of our time that goes to the heart of our democratic freedoms. As we wrote in 2019, “The tech sector was born and has grown because it has benefited from these freedoms. We owe it to the future to help ensure that these values survive and even flourish long after we and our products have passed from the scene.”

The United States should not object to a creative Australian proposal that strengthens democracy by requiring tech companies to support a free press. It should copy it instead.

I'm an independent journalist. This isn't going to help me. There's no way in hell any of these solutions will ever involve us getting any money out of this, and if it did, then suddenly there would be all sorts of questions about whether or not we could even cover those companies fairly, since they'd be a key source of revenue. How the hell does this help democracy?

And, then it gets even worse. Soon after, Microsoft announced that it was teaming up with EU publishers to seek a similar link tax in the EU.

Microsoft is teaming up with European publishers to push for a system to make big tech platforms pay for news, raising the stakes in the brewing battle led by Australia to get Google and Facebook to pay for journalism.

The Seattle tech giant and four big European Union news industry groups unveiled their plan Monday to work together on a solution to “mandate payments” for use of news content from online “gatekeepers with dominant market power.”

They said they will “take inspiration” from proposed legislation in Australia to force tech platforms to share revenue with news companies and which includes an arbitration system to resolve disputes over a fair price for news.

Some people are seeing through all of this -- and even Inc. Magazine called out Microsoft as "the ultimate troll" for its stance here. But this isn't a game. This isn't just politics. This is about the nature of the open web.

And Microsoft is singing happily along as it helps regulators and old, failed publishers around the globe break the open web. All because they're jealous of Google.

It's not difficult to see the path this is likely to head down, and it's bad. A few countries force Google/Facebook to pay these old school publishers. Then, basically everyone else on the web notices this and says "hey, how come they get to link to me for free? Shouldn't they be paying me too?!?" And then, one by one, we'll just hear of every failed and flopped industry demanding free money from the companies that actually innovated. The music industry must be so excited. Book publishing? Absolutely. What about boxed software providers (hi, Microsoft!).

Basically, every industry that failed to adapt and innovate online is likely to go running to government demanding payment. And the very nature of the open internet ceases to exist the way it has for the past three decades. It's a terrible, terrible idea, and it was ridiculous that it went ahead in Australia. But Microsoft is an actual tech company, which should know better, but it's trollish obsession with Google beating Microsoft in the market means it's willing to toss out the open internet if it thinks it will harm Google.

It's shameful and disgusting.

Filed Under: antitrust, australia, brad smith, competition, links, negotiations, news tax, paying for links
Companies: facebook, google, microsoft

That Time Taylor Swift Threatened To Sue Microsoft Over Its Racist Chatbot

from the tay-tay dept

I don't know much about Taylor Swift, but I do know two things. First, she apparently has built a career out of making music about men with whom she's had breakups, real or fictitious. Second, it sure seems like she spends nearly as much time gobbling up every type of intellectual property right she can and then using those rights to threaten everyone else. She trademarks all the things. She tosses defamation and copyright claims around to silence critics. She sues her own fans just for making Etsy fan products. Some of these attacks are on more solid legal ground than others, but there appears to be a shotgun approach to it all.

Which is why perhaps it only comes as a mild surprise that Swift once threatened to sue Microsoft. Over what, you ask? Why, over Microsoft's racist chatbot, of course!

In the spring of 2016, Microsoft announced plans to bring a chatbot it had developed for the Chinese market to the US. The chatbot, XiaoIce, was designed to have conversations on social media with teenagers and young adults. Users developed a genuine affinity for it, and would spend a quarter of an hour a day unloading their hopes and fears to a friendly, yet non-judgmental ear.

The US version of the chatbot was to be called Tay. And that, according to Microsoft’s president, Brad Smith, is where Swift’s legal representatives got involved. “I was on vacation when I made the mistake of looking at my phone during dinner,” Smith writes in his forthcoming book, Tools and Weapons. “An email had just arrived from a Beverly Hills lawyer who introduced himself by telling me: ‘We represent Taylor Swift, on whose behalf this is directed to you.’

“He went on to state that ‘the name Tay, as I’m sure you must know, is closely associated with our client.’ No, I actually didn’t know, but the email nonetheless grabbed my attention. The lawyer went on to argue that the use of the name Tay created a false and misleading association between the popular singer and our chatbot, and that it violated federal and state laws,” Smith adds.

Note here that Swift sic'd her lawyers on Microsoft before Tay evolved into its most infamous form. See, Tay was designed to learn from its interactions with humanity to make it appear and react more human-like. This went exactly as should have been predicted, with Tay morphing into a solidly racist hate-machine that spat vitriol at nearly all who interacted with it.

But before that occurred, Swift had trademarked her nickname, "Tay." And then sent Microsoft a cease and desist notice claiming that the public would confuse its chatbot AI as having some association with Taylor Swift. That's not how any of this works. Taylor Swift, to my knowledge, is not herself an AI chatbot nor has she created one herself. Nothing in trademark law allows a pop singer to control language for a technology company.

It's only by virtue of Microsoft's good sense that we didn't get to see an epic legal battle between the two.

Tay had been built to learn from the conversations it had, improving its speech by listening to what people said to it. Unfortunately, that meant that when what Smith describes as “a small group of American pranksters” began bombarding it with racist statements, Tay soon began repeating the exact same ideas at other interlocutors. “Bush did 9/11 and Hitler would have done a better job than the monkey we have now,” it tweeted. “WE’RE GOING TO BUILD A WALL, AND MEXICO IS GOING TO PAY FOR IT,” it added.

Within 18 hours, Microsoft disconnected the bot from the Tay Twitter account and withdrew it from the market. The event, Smith writes, provided a lesson “not just about cross-cultural norms but about the need for stronger AI safeguards”.

Any chance we could make some room for safeguards against this insane ownership culture we have?

Filed Under: ai, brad smith, chatbot, publicity rights, tay, taylor switf
Companies: microsoft

Tech Execs Express Extreme Concern That NSA Surveillance Could Lead To 'Breaking' The Internet

from the moral,-economic-and-patriotic dept

As mentioned, on Wednesday I attended a tech exec panel held at Palo Alto High School (in the high school gym, which was a weird sort of setting for such a high powered gathering of folks -- complete with gym echoes, and school bells buzzing, at one point leading a bunch of students to stream out to lunch just as Google's Eric Schmidt started talking). You can see the video of the event here where the sound is actually much, much clearer than in the gym itself, where the buzzing old lights made it nearly impossible to hear half of the panelists). Nothing necessarily earth-shattering was said by anyone, but it did involve a series of high powered tech execs absolutely slamming the NSA and the intelligence community, and warning of the vast repercussions from that activity, up to and including potentially splintering or "breaking" the internet by causing people to so distrust the existing internet, that they set up separate networks on their own.

The execs repeated the same basic points over and over again. They had been absolutely willing to work with law enforcement when and where appropriate based on actual court orders and review -- but that the government itself completely poisoned the well with its activities, including hacking into the transmission lines between overseas datacenters. Thus, as Eric Schmidt noted, if the NSA and other law enforcement folks are "upset" about Google and others suddenly ramping up their use of encryption and being less willing to cooperate with the government, they only have themselves to blame for completely obliterating any sense of trust.

Microsoft's Brad Smith, towards the end, made quite an impassioned plea -- it sounded more like a politician's stump speech -- about the need for rebuilding trust in the internet. It's at about an hour and 3 minutes into the video. He points out that while people had expected Congress to pass the USA Freedom Act, the rise of ISIS and other claimed threats has some people scared, but, he notes:

We need to look the world's dangers in the face. And we need to resolve that we will not allow the dangers of the world to freeze this country in its tracks. We need to recognize that antiquated laws will not keep the public safe. We need to recognize that laws that the rest of the world does not respect will ultimately undermine the fundamental ability of our own legal processes, law enforcement agencies and even the intelligence community itself. At the end of the day, we need to recognize... the one asset that the US has which is even stronger than our military might is our moral authority. And this decline in trust, has not only effected people's trust in American technology products. It has effected people's willingness to trust the leadership of the United States. If we are going to win the war on terror. If we are going to keep the public safe. If we are going to improve American competitiveness, we need Congress to stay on the path it's set. We need Congress to finish in December the job the President put before Congress in January.

It was a good talk, and it basically was a chance for all these tech execs to express similar concerns and to do so loudly. It's perfectly reasonable to suggest that the tech industry was complacent on these issues in the past, that they were too trusting (often way too trusting) of the government, that they should have started from a position of distrust and should have encrypted everything possible from the get go. Frankly, those are very legitimate criticisms. But, it's pretty clear that these tech companies are now pissed off at the government and the fact that it undermined everything, including their own businesses around the globe -- and they're determined to win back the trust of the public, whether or not the government is willing to cooperate. I find that encouraging, though I'd still like to see pretty much all of the companies do even more on the encryption front.

As I said, there wasn't anything earth shattering, but it's clear that these companies have all seen the impact from the government's overbroad surveillance efforts, and they're not just concerned about it from their direct bottom line, but what it means for the overall internet. Multiple execs talked about not just moral authority, as Smith mentioned, but the moral imperative to use the internet to create greater connectivity and raise the ability of people around the globe -- and how much more difficult the NSA had made things.

I know that some cynical folks will claim this is all for show. But there is a real concern that comes across here about just how devastating the NSA's actions have been (and continue to be). Schmidt was absolutely right that if law enforcement and the intelligence community is upset about it, they only have themselves to blame.

Filed Under: brad smith, economy, eric schmidt, nsa, ron wyden, surveillance, trust
Companies: google, microsoft

Kudos: Microsoft Changes Policy, Promises Not To Inspect Customers' Content

from the good-move dept

Last week, we wrote about Microsoft's ridiculous decision to search through a reporter's Hotmail email account after realizing that reporter had an unauthorized copy of Windows 8. The whole thing seemed like a huge overreaction by the company -- in trying to track down an almost meaningless leak that was unlikely to have any real impact on anything, the company effectively alerted the world that you had no real privacy in your email. The move was even more ridiculous since Microsoft has more or less bet its email farm on a marketing campaign about how it respects your privacy more than others. Microsoft's first response to this was exceptionally weak. While it announced a "change" in policies, it was still the same basic policy, that effectively (and misleadingly) claimed that it could and would continue to search anyone's email if the company had evidence that you might reveal a leaker.

Apparently -- and somewhat surprisingly -- it appears that Microsoft and its legal team took the criticism seriously. Microsoft's General Counsel Brad Smith has now put out a new blog post announcing a complete change in policy, promising that it will not unilaterally look through any Microsoft user's content in search of "stolen" intellectual property:

Effective immediately, if we receive information indicating that someone is using our services to traffic in stolen intellectual or physical property from Microsoft, we will not inspect a customer’s private content ourselves. Instead, we will refer the matter to law enforcement if further action is required.

Furthermore, the company will officially change its terms of service to reflect that change in policy. On top of that, it is starting a (somewhat undefined) project with EFF and CDT to work on "best practices" concerning privacy. Smith's apology is quite heartfelt, which is also rare from a big company:

It’s always uncomfortable to listen to criticism. But if one can step back a bit, it’s often thought-provoking and even helpful. That was definitely the case for us over the past week. Although our terms of service, like those of others in our industry, allowed us to access lawfully the account in this case, the circumstances raised legitimate questions about the privacy interests of our customers.

In part we have thought more about this in the context of other privacy issues that have been so topical during the past year. We’ve entered a “post-Snowden era” in which people rightly focus on the ways others use their personal information. As a company we’ve participated actively in the public discussions about the proper balance between the privacy rights of citizens and the powers of government. We’ve advocated that governments should rely on formal legal processes and the rule of law for surveillance activities.

While our own search was clearly within our legal rights, it seems apparent that we should apply a similar principle and rely on formal legal processes for our own investigations involving people who we suspect are stealing from us. Therefore, rather than inspect the private content of customers ourselves in these instances, we should turn to law enforcement and their legal procedures.

Personally, I wish the announcement and policy change went a bit further -- beyond just "intellectual or physical property," but making it clear across the board that, absent a reasonable warrant signed by a judge, Microsoft will not allow anyone to access anyone's content. But, perhaps we'll get there some day. In the meantime, Microsoft does deserve some kudos for changing positions. Most large companies would try to just let this issue fade away rather than proactively address it.

Filed Under: brad smith, email, policies, privacy
Companies: microsoft

Microsoft To Encrypt Data Center Links; Says NSA Hacking Would Be Unconstitutional

from the and-now-what? dept

We were somewhat surprised to see Microsoft recently admit that in the wake of the revelation that the NSA had infiltrated the private data links between Yahoo and Google's data centers that it had not yet decided to encrypt its own such links. Google had very quickly moved to encrypt those links and Yahoo has recently done so as well (though it took a little while). Now Microsoft is saying that it's going to do the same thing.

While the revealed documents did not directly point to a similar infiltration of Microsoft, there's reason to believe it was also compromised. Other Snowden documents mentioned in the linked article above note that Microsoft is listed as having data accessible under the same program, referred to as MUSCULAR. Perhaps more interesting is Microsoft making it clear that it believes any such infiltration would be a serious legal violation:

When asked about the NSA documents mentioning surveillance of Microsoft services, Smith issued a sharply worded statement: “These allegations are very disturbing. If they are true these actions amount to hacking and seizure of private data and in our view are a breach of the protection guaranteed by the Fourth Amendment to the Constitution.”

Of course, just because something is a Constitutional violation doesn't necessarily mean that there's much of a legal remedy. Any lawsuit would immediately lead to claims of sovereign immunity and national security to try to kill off any such lawsuit. It's the same thing the feds have done every time they've been challenged on this stuff. The only real way to deal with this is to make sure that the companies actually protect user data in a manner that makes it nearly impossible for the government to break in as it has in the past.

Filed Under: brad smith, datacenters, encryption, infiltration, nsa, nsa surveillance
Companies: microsoft

Funny How Microsoft's Views On Responsibility To Competitors Differ Based On Who's In The Antitrust Hot Seat

from the this-is-known-as-hypocrisy dept

We recently mentioned the latest round of Microsoft's antitrust fight, dating back to some of its actions around Windows 95. To be clear, I think the action against Microsoft is pretty silly. It's pretty clear that the market is quite capable of dealing with any perceived Microsoft "monopoly" and routing around it. That said, one thing that is quite stunning in all of this is the sheer hypocrisy from Microsoft in discussing this case, as compared to Microsoft's own efforts to drag Google into an antitrust battle as well. Now, some will shrug and say that this is basic self-interest on Microsoft's part. It's always going to favor things that help Microsoft. But it certainly seems to weaken the validity and credibility of Microsoft's arguments.

Back in March, we noted just how ridiculous this was, when Microsoft complained about Google to the European Union, whining that Google made it difficult for Microsoft's platforms (mainly the Bing search engine and Microsoft's mobile platform) to access YouTube video data. At the time Microsoft's General Counsel sure seemed to insist that Google had a duty to engineer its platform to make life easier for its competitors. Here's the quote we highlighted back in March:

First, in 2006 Google acquired YouTube--and since then it has put in place a growing number of technical measures to restrict competing search engines from properly accessing it for their search results. Without proper access to YouTube, Bing and other search engines cannot stand with Google on an equal footing in returning search results with links to YouTube videos and that, of course, drives more users away from competitors and to Google.

Second, in 2010 and again more recently, Google blocked Microsoft's new Windows Phones from operating properly with YouTube. Google has enabled its own Android phones to access YouTube so that users can search for video categories, find favorites, see ratings, and so forth in the rich user interfaces offered by those phones. It's done the same thing for the iPhones offered by Apple, which doesn't offer a competing search service.

Note how in both paragraphs, Smith seems to clearly suggest that Google has a duty to engineer its products to make life easier for Google's own competitors.

Okay. Now, jump over to the ongoing antitrust lawsuit against Microsoft by Novell. And note how Microsoft's lawyers appear to argue directly against this idea that a company should have a duty to build its products to help competitors:

Microsoft attorney Steve Aeschbacher said Novell is saying it wishes Microsoft would have developed Windows 95 differently than it did.

"The law basically doesn't require people to design their products to the whim or demand of other companies. You get to design your own products. There isn't any legal obligation for us to do what they wanted us to do," he said.

Seems to directly contradict what Microsoft said just months ago when it was talking about Google. Furthermore, in Microsoft's motion for summary judgment (pdf) in the current case -- a brief you can be sure MS General Counsel Brad Smith was well aware of -- Microsoft again appears to argue the exact opposite of what it said in regards to Google just months ago:

The allegations underpinning count I are premised on the notion that Microsoft had some affirmative duty to assist�or to continue assisting�a competitor. Novell complains that Microsoft harmed its office productivity applications designed for use with Windows 95 by (i) discontinuing the formal documentation of six APIs in pre-release versions of Windows 95, (ii) failing to include in Windows 95 certain functionality that Novell would have liked, and (iii) failing to endorse Novell�s applications by granting Novell a license to use the Windows 95 logo. These allegations are not cognizable under the antitrust laws.

The objective of our antitrust laws is to promote competition. Successful companies�even monopolists�are encouraged to compete vigorously. Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 544 (9th Cir. 1983) (�A monopolist, no less than any other competitor, is permitted and indeed encouraged to compete aggressively on the merits.�). Monopolists are encouraged to innovate and are entitled to retain the benefits of such innovation. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 281 (2d Cir. 1979). Moreover, a monopolist is not required to help its smaller rivals or shield them from the rigors of competition. Olympia Equip. Leasing Co. v. Western Union Tel. Co., 797 F.2d 370, 375-76 (7th Cir. 1986) (�A firm with lawful monopoly power has no general duty to help its competitors.�); Twin Labs., Inc. v. Weider Health & Fitness, 900 F.2d 566, 568 (2d Cir. 1990) (�Antitrust law . . . does not require one competitor to give another a break just because failing to do so offends notions of fair play.�).

I agree very much with the Microsoft filing in this case. Antitrust law shouldn't be about propping up competitors or requiring a company to engineer its products in a certain manner to help competitors. And while I understand that Microsoft's position will shift depending on whatever benefits Microsoft best, it seems like the company is being ridiculously short-sighted in being so blatantly hypocritical and inconsistent. It hurts its chances in this particular lawsuit, and it hurts Microsoft's overall credibility. While I understand that Microsoft thinks tossing around antitrust accusations at Google may make life difficult for Google, it seems like both companies would be a lot better off if neither of them tossed antitrust arguments at the other. It seems only likely to backfire.

Filed Under: antitrust, brad smith, competition, responsibility
Companies: google, microsoft, novell

Lawyers Discussing Business Models

from the dancing-about-architecture dept

Doug Lichtman's latest "IP Colloquium" podcast is on the question of whether or not "content can survive online." Specifically, it's a discussion about "online content business models." Oddly, though, rather than having business model experts, it's a conversation with four lawyers, starting with Doug, and including Brad Smith, General Counsel, Microsoft; Scott Martin, Executive Vice President, Intellectual Property, Paramount Pictures; and Dan Cooper, Vice President, Legal & Business Affairs, MySpace. Lichtman starts it off, oddly, by stating -- as if fact -- that talking about business models online is depressing because there's just not much in the way of business models online for content. I think that's damning things a bit early in the process -- something that comes up again later.

While I realize that the podcast is a legal podcast, it still strikes me as odd to bring together four lawyers to have them discuss business models, when their expertise is not in business at all, but in the law.

The podcast starts out with a discussion on the Google Book search and settlement, but oddly no one even seems to give any credit to the fair use question. But, again, since these are lawyers we're talking about, there really isn't much of a discussion on business models around Google Book Search, but on legal questions -- including a hope that Congress steps in to solve it. Amusingly, Microsoft's Smith early on suggests that it's a question Congress could solve "if the industry got behind it; if copyright holders got behind it." Striking, huh? He basically admits how copyright law works in this country. It's not about what's best for the overall society or economy. It's not about the politicians fixing things where they see a problem. It's not about consumers. It'll happen if the industry gets behind it. Welcome to the way things work in DC. The rest of this part of the discussion is interesting -- and it's one (rare) case where I mostly agree with Lichtman, that as a resource, Google's Book search is incredibly useful, and we should figure out some way for it to happen.

From there, the discussion moves on to other business models, and quickly seems to head off in directions that I don't think are accurate from a business model standpoint. It starts off with two premises set forth by Lichtman, each of which I think is suspect. First, he claims that piracy is a problem because "you can't compete with free." Frankly, I'm sick of this argument because it makes no sense economically or from a business standpoint. Economically, saying that you "can't compete with free" is the same thing as saying you can't compete -- period. It assumes, falsely, that the only way to compete is on price, but the history of the economy shows that's not true. You compete on price or you compete on benefits, and competing on price is often a losing battle anyway. Saying "you can't compete with free" just means you only know how to compete on price. If that's the case, you shouldn't be in business.

And, to make that point clear, tons of companies compete on benefits, and allow other companies to offer lower priced offerings. The popular example, of course, is "water," whereby it's free (or near free) to drink out of the tap, but the bottled water business is a multi-billion dollar business. Why? It tries to compete on other factors -- such as convenience, quality or safety (though, there are arguments that many of these benefits are perceived rather than real). But it's true in just about any other business as well. In the automobile business, a BMW costs more than an entry level Ford, and that's because BMW is seen to have a lot more scarce value. Ford could "copy" BMW, but BMW has its reputation and some amount of prestige that Ford simply can't copy.

Anyone who's in business recognizes that you don't just compete on price. So why is it that so many seem to assume that the only way to compete in the content market is on price?

Lichtman's second premise is that online business models don't work. He says that Hulu hasn't been a success because it doesn't make as much as TV, and that if Hulu displaces TV we "won't have the money to pay for" expensive TV show production. He claims that even if Hulu is really successful, it'll never make enough money to pay for the production of a show like Battlestar Galactica. First off, huh? How does he know that? If Hulu is successful, it absolutely could pay for such production. Already, we're seeing that some of the online ad rates are higher than TV ad rates. Hulu's barely been around for two years at this point. I'd be willing to bet that Hulu's revenue today greatly exceeds the revenue of television two years after it was invented. Give it time, Doug!

He then jumps on Redbox -- sarcastically saying "we're renting movies at a dollar per day?" Suggesting that this will never sustain the development of movies. Really? I always find it amusing when people insist that problems in the DVD market will mean the death of Hollywood. It really was just 25 years ago that Hollywood insisted that the VCR would kill the industry (Boston Strangler, anyone?). Now they finally get their "original" wish, and find that putting movies on recordable media is going away, and it's the worst thing in the world?

Either way, the economic fallacy that Doug seems to be relying on here is twofold. First, he assumes that early business model experiments are set in place and no further innovation will occur that allows them to flourish. He assumes that the markets won't grow, and some of these experiments won't click and get much bigger. Second, he seems to assume that the old revenue numbers for these industries need to be sustained. He doesn't consider that the old revenue numbers may have been a result of monopoly rents, limited competition or technological limits. Markets change all the time, and usually what comes out in the end is much better (subjective, I know, but I'm a believer that the world is a better place today than it was 25 years ago -- and that it will be even better 25 years from now).

But, of course, no one challenges him on this. Scott Martin at Paramount, of course, worries quite a bit about piracy of movies. While he admits (finally!) that he's just the lawyer, rather than the business guy, he discusses it in the terms of adding more windows to movie releases, rather than any discussion of adding more value to the product, or giving people reasons to buy beyond just the content. Then Martin repeats the myth that you can't compete with free, but leads in with a different myth -- claiming that the "copyleft" people say that piracy would go away if they just priced their movies better. That's a strawman argument. Perhaps someone out there made that argument, but it's hardly common. Then he says that "the idea that if we charged $2 a download instead of $10 a download, we'd get rid of piracy is a myth." Sure, it's a myth, but no one said that. You can't get rid of piracy. No one thinks you can get rid of piracy. No one suggested anything you do would "get rid of piracy." What many of us are suggesting is that you can build business models where that piracy isn't a problem. Even the people suggesting you just charge $2 instead of $10 aren't saying it would "get rid of piracy," but that at $2, enough people would pay for it that it would increase profits beyond what the $10 DRM'd version gets you.

Anyway, the discussion goes on from there, including a discussion of the DMCA that again doesn't make much sense to me, but the business/economic analysis throughout doesn't strike me as accurate at all. It's still an interesting discussion, but frustrating because I wish there were at least someone on the panel who would challenge a lot of the "accepted wisdom," put forth by everyone, that doesn't seem to be accurate. Brad Smith, at one point, does point out that this is all a "revenue" problem, and does a pretty good job describing the revenue problem... but then falls into the trap of saying the law needs to "fix the piracy problem" because without that, business models can't be built up.

The last analysis I'll talk about that is again faulty from an economics standpoint again comes from Scott Martin at Paramount, where he tries to defend the importance of DRM, noting that if he flies into JFK he has various price options on transportation: he can buy a car, rent a car, take a cab or take a train. So there are price differentials. He says that without DRM, content is like saying his only option is to buy a car. That is, if he had DRM, they could offer different "rental options" for content, with "one day pricing or one week pricing." But that's totally wrong again. There's a reason for the differential pricing in the transportation options: it's related to the marginal cost of each option and the competitiveness of the market. That's what sets the prices. But with content, the marginal costs are zero, so what he's doing is trying to set up an artificial barrier to pretend the markets are the same.

While I like listening to these discussions, I just find the economic fallacies frustrating.

Filed Under: brad smith, business models, content, dan cooper, doug lichtman, lawyers, scott martin
Companies: microsoft, myspace, paramount