Copyright Lobbyists And The $1 Trillion Fallacy

from the even-if-we-take-the-bogus-stats-at-face-value dept

Well, here we go again. Earlier this week, the IIPA (a sort of uber copyright maximalist lobbying group, made up of other copyright maximalist lobbying groups, including the MPAA, RIAA, BSA, AAP, NMPA, ESA and IFTA) released a new report on the economic impact of "the Copyright Industries." This report comes out every few years, written by the copyright maximalists' favorite economist, Stephen Siwek, who is well known for both these reports and another set of reports in which he tries to calculate "losses" due to infringement using the most ridiculous and misleading methodology imaginable. This report is slightly different. There's not much in the way of direct methodology: he's basically lumping together a bunch of industries as "core copyright" industries, and presenting some stats around them. There are also the "partial copyright" industries, which are kind of laughable, since it includes things like "furniture."

The report is incredibly misleading (and is being used in a misleading way), but we'll get to that. Instead, let's start out by taking the report at face value, and assuming that it is accurate. The claim that the backers of the report (including NBCUniversal, which funded it) are latching onto is the big round number: the claim that:

for the first time, the contribution of the core copyright indus- tries of the U.S. economy surpassed one trillion dollars in 2012

One Trillion! Big number. So big that the IIPA was even able to get the head of the Copyright Office, Maria Pallante, to highlight it in her presentation that coincided with the launch of the report. She apparently put that number on a single powerpoint slide and asked people to remember that number.

As we'll describe, that number doesn't actually say what Pallante and others are pretending it says, but even if it did... doesn't it suggest that the industries are doing fine? Even as infringement has continued to be a major issue, and there are new ways to share content around the globe, the data in the report suggests that the "core copyright industries" have continued to grow and thrive at a very consistent pace -- completely contrasting the supposed doom and gloom these same folks tell us about how piracy is supposedly killing these industries.

Instead, the report shows a steady increase in revenue within these industries, a steady increase in employment and a steady increase in the salaries of those employed in those industries -- in which they make more than people in many other industries. Basically, every chart in the report suggests that the "core copyright industries" are thriving, especially compared to the wider economy. Take, for example, the compensation chart: And yet, during those same years, we were being told, repeatedly, that those industries were dying, that jobs were going away and that we needed much stricter new copyright laws. This chart seems to debunk all of that.

But... of course, that's not how the IIPA and its supporters are spinning this report. Instead, they're using it to argue that "the core copyright industries" are "so important" to the US economy that they need to new laws and protection:

"This study represents a milestone," said Steven J. Metalitz, counsel to the IIPA. "In order to preserve and enhance jobs, exports and economic contributions, it is critical that we have strong legal protections for U.S. creativity and innovation in the U.S. and abroad."

[....] "This report makes it crystal clear that workers in the creative industries make a huge contribution to America's economy," said Matt Loeb, international president of the International Alliance of Theatrical Stage Employees, which represents crew members on movies and TV shows. "It also underscores the urgent need to do more to build, strengthen and protect employment in this dynamic part of our nation's economy."

But... neither of those claims follows from the numbers presented. If these people knew anything about basic economics, they'd know that protectionism doesn't help grow markets -- it constrains them. The way you "strengthen" employment in these markets is by allowing competition and innovation to flow, which is the exact opposite of the legal regime they're pushing for. Of course, everyone knows what this is really about. The report is supplied by a few legacy players in this space, the ones threatened by innovation and upstarts. It's being pushed by the gatekeepers who don't want to compete. They don't want there to be more competition and innovation, because that tends to allow artists and creators to go direct -- and not to have to rely on gatekeepers, who take an 85% cut of all revenue.

Even worse, the report is incredibly misleading -- in effect allowing Siwek, the IIPA, Maria Pallante and other copyright maximalists to blatantly use the success of others who did not rely at all on copyright to support their notions that we need more copyright. That's because of a basic fact that is totally ignored in the report: just because you produce "copyright" covered content, it does not mean that you needed copyright to do so, or that you require copyright laws to do so. Instead, the report and its supporters are falsely claiming that every bit of revenue from the "core copyright industries" is because of strict copyright law. That's provably false. Hell, technically, the revenue that this very site that you're reading now produces is almost certainly included in that "$1 trillion." We're very much a part of the "core copyright industries." And yet we don't rely on copyright. At all. In fact, we dedicate all of our content to the public domain.

And it goes beyond that. A significant portion of the revenue they're discussing actually comes from computer software: But that's an industry where there's tremendous support for changing copyright laws so that there's less protection and more sharing. The growth of the open source movement, and the fact that it powers so much of what we do today, is hardly an argument for stricter protectionism and ratcheting up copyright laws. But, by lumping them all in as "core copyright industries" and then pretending that means you need strict copyright laws to create that content, Siwek, his funders and their friends get to actually use the innovations and business models that show why stricter copyright may be a bad idea... to argue for stricter copyright law.

It's not just blatantly dishonest, it's co-opting the economic activity that disproves their argument to pretend it supports their argument. That Maria Pallante would quote that number and support it suggests serious problems in how the Copyright Office views things today. This kind of report has no business being taken seriously, let alone being used in any policy arguments at all. But, if it is, at the very least, people should point out that, if taken at face value, it pretty clearly shows that the copyright maximalists have been flat out lying about their industries struggling, and how they need things like SOPA, TPP and other legal changes.

Filed Under: copyright, copyright industry, copyright maximalism, core copyright, economic impact, fallacies, stephen siwek, steve metalitz
Companies: bsa, iipa, mpaa, nmpa, riaa

Fallacy Debunking: Successful New Business Model Examples Are The 'Exception'

from the debunker's-forum dept

I've been meaning to start to put together a series of posts that debunk the common "criticisms" we get that are all too often based on logical fallacies. I end up spending way too much time in the comments responding to people posting those same logical fallacies over and over again, and it would be nice to be able to point to posts that "answer" the complaints quickly. I'm still not sure if I'll ever really get around to it, but sometimes someone else does such a nice job of it, that I might as well highlight it with a post here.

In this case, it's the commonly claimed fallacy that all these new business models don't really matter because of two things: (1) so much money is still going to the "big players," and (2) there are only a "few" examples of these models working, so they're outliers.

One example of this kind of thinking was seen in the comments to our recent post about the developer of the game Minecraft making $100,000 per day, without any distribution or retail deals or really any outside help. Yet, one of our commenters said this was nothing, because Halo made $200 million on its first day. Of course, that's a pure apples to oranges comparison. Halo is from Microsoft, and involves a giant team, a huge budget, massive advertising and distribution deals. I would guess that if you compared the two in terms of profitability per developer, Minecraft would win by a wide, wide margin.

Anyway, it's a meaningless comparison. Setting an artificial level as determining what counts as a "success" makes no sense. What we're interested in when we're looking at new business models and new strategies is how these compare to how a similar person would have done without those models. Without the internet and the ability to distribute Minecraft the way Markus Persson is doing so, he wouldn't be making anywhere near $100,000 per day. More likely is that he'd be working for a much larger gaming company, one piece in a cog, and bringing in something closer to $100,000 for the year, and not working on projects nearly as interesting.

Another example of this occurred earlier this year, when a Billboard reporter, Anthony Bruno, attacked the concept of "CwF+RtB" by arguing that I've only "cherry picked" the success stories, and many who have tried it failed to become successful. But, that makes no sense. No one guaranteed that using a smart business model automatically makes your band a huge success. What we said is that if you do it right, it's likely you'd be more successful than otherwise -- but that still might involve only a minor improvement if under the old system you wouldn't be successful at all. And if the CwF+RtB concept doesn't matter because some artists who have used it haven't become big stars, then wouldn't that mean that the "traditional" model of big record label/sell CDs has always been a dreadful failure since so few artists become successful that way? After all, pointing to the success of Led Zeppelin or Pink Floyd or the Beatles under the old model, is certainly pointing to the cherry-picked "exceptions."

Andrew Dubber points us to a fantastic blog post by Rich Huxley, of the band Hope & Social, who ran into this sort of "criticism" after writing a blog post (similar to many we've written) reminding everyone that the big record labels are not the "music industry." In the comments, a guy named Tim London challenged that by claiming that since the big record labels still take in a ton of money (in aggregate), and many of these new business models appear to be artists making much smaller amounts, the record labels still are the industry. One sentence from his comment should give you the general summary:

I know you're wrong because the music industry as represented by the majors is still coining it and the music industry as rep'd by you is getting by, struggling, working part time or making music as a hobby.

There's that apples and oranges comparison again. Thankfully, Huxley decided to write an entire (brilliant) blog post debunking the idea that the total amount of money some record labels make is indicative of the overall value of a particular model. First, he goes through some basics to show how many musicians there are out there, and points out that money made isn't always an indicator of quality ("That Van Gogh was a penniless artists does not diminish the greatness of his work.")

But then comes the real point, explained eloquently. The critics like this highlight the huge earners in the existing industry, but ignore that the overwhelming majority of the folks who try to go the old route end up making $0. They mock the person embracing new business models for "only" making a decent living, ignoring the fact that so many who went the way they prefer were drummed out of the industry making no living at all. Here's the way Huxley explains it:

Less than 10% of signed artists recoup. Take Maximo Park for example. They have by their own admission never made a penny from record sales and make their money from DJ sets in the main. An example I have first hand knowledge of, Embrace, have sold millions of albums, they were a genuinely massive band; they performed from Glastonbury main-stage to Top Of The Pops and everywhere in-between. When they split from Virgin, they owed their label three quarters of a million pounds. I guess my point is that if we promote the Trad Music Biz's model as "The model" then the message we'd be sending is:

• less than one percent of musical artists are part of the music business
• only a tenth of those will recoup and make money from their record sales, and that's good
• an artist should be saddled with debt, the rate at which they pay that back is equivalent to a credit card with a 900% interest rate

Basically, the problem is that those who cherry pick just the biggest artists ignore all the ones who made nothing at all from a record label deal, thanks to the fun of RIAA accounting. In other words, those artists are the true "exceptions." They're the ones who got the winning lottery ticket, but you can't ignore all those who got nothing. If you were to put all of the musicians who went the "traditional" route into a set, and all of the musicians going the "new" route into a set, and took the median, I'd guarantee that it would be higher in the new set. And that's the point. Embracing the new ways makes it much more likely that you'll make some money. It improves your chance of being able to make money making music. And that seems like a good thing, right?

As a part of that, of course, is that all of the costs have gone down with the new ways of doing things. The reason why people needed the old gatekeepers to fund stuff in the past was because there were no cheaper options. The only way to actually get this stuff done was to go through them. But these days, everything is cheaper. As Huxley notes with his band:

Hope and Social believe in and benefit from Pay What You Want. We go on about this here, but also... As musicians, we all have the ability to take advantage of the same channels that H&S have:

• dramatically reduced costs of recording
• a zero cost of distribution (should we choose to make mp3s available on the internet then there's no cost to us. This is miles away from the Trad model where the cost of recording and manufacture made it nigh on impossible to record and release independently)
• reduced cost of promotion (CD's don't need to be sent to reviewers, press etc at the cost of a quid per CD, and half again on postage)
• and by building relationships with people, they become our PRs, our evangelists (to coin another religious term, man I've got to stop doing that)

Also, there is a value in making your music available for free. If someone downloads an album of ours and shares it with a friend, copies the CD, plays it at a party, then that's how we share and have our music heard by more people. This results in:

• higher gig attendances
• better paid shows
• more sales of our music
• more sales on other merchandise and art that we, and our fans make.

Finally, I'll make one final debunking point that Huxley didn't cover: London seems to have confused absolute revenue with the change in revenue (delta). If you look at those embracing new models, it may be smaller (now), but it's growing quite quickly. If you look at the big record labels, they're declining in size. Which trend is a better bet? It's really a version of the Innovator's Dilemma where the new growth trend is ignored because it's not "as big" as the legacy business. Ignoring the deltas is dangerous.

And there we go. If you're claiming these new model success stories are the "exception," then it's only fair to admit that those who succeed under the traditional models you claim are so good were actually much bigger "exceptions." Can we now consider this argument debunked, and just link back to this post any time people bring up an argument like this?

Filed Under: business models, exceptions, fallacies

Must Read: CCIA Sets US IP Czar Straight On Intellectual Property

from the wow dept

A few days ago, I posted the letter I submitted to the White House IP Czar, Victoria Espinel, concerning her request for comments on the strategic plan for IP enforcement. It was a bit troubling that the questions asked in the RFC focused solely on increased enforcement and the amount of harm done by infringement -- as if it never even occurred to folks that increased enforcement might not be best for culture or the economy, and that there may also be mitigating benefits to infringement. I tried to make that clear in my filing, and it was great to see folks like Public Knowledge and the EFF submit comments as well -- but the really wonderful filing came from the NetCoalition and CCIA, which we discuss below. First, though, it's worth noting that the entertainment industry also made its demands...

The RIAA, MPAA and the Screen Actors Guild teamed up to submit their own filing, and as the LA Times noted "it's a doozy." Consider it a wishlist of protectionist, anti-consumer, anti-innovation policies, basically demanding that the White House prop up their own businesses, because of their unwillingness to adapt:

Among other things, the "creative community organizations" urged that:

• The federal government encourage ISPs to use, and companies to develop, monitoring, filtering, blocking, scanning and throttling technologies to combat the flow of unauthorized material online;
• Copyright holders be able to combat infringement by making a database of their works available to service providers, rather than submitting individual takedown notices. And once a work is taken down, service providers should be expected to employ "reasonable efforts" to prohibit users from uploading or even linking to them again;
• Copyright owners be able to block unauthorized streams of live broadcasts without going through the formal notice-and-takedown process;
• The federal government press search engines, social networks, hosting companies, domain name registrars and online advertising and payment networks to cooperate with copyright holders on efforts to combat piracy ("Encouraging these intermediaries to work with content owners on a voluntary basis to reduce infringements, and assuring these intermediaries that such cooperation will not be second-guessed, should be top priories that call for the personal intervention of senior government officials if necessary.");
• A federal interagency task force work with industry to interdict prerelease bootlegs of Hollywood blockbusters and crack down on U.S. services that assist foreign piracy hotbeds;
• States adopt "labeling laws" that "defined unauthorized online file sharing and streaming as a felony," giving state and local law enforcement jurisdiction to go after unauthorized copying online;
• States use consumer protection laws to go after file-sharing sites that "expose consumers to intrusion, viruses and revelation of personal data."

You can read the entire entertainment industry filing below, but be ready to laugh at the highly questionable claims:
IPEC Filing: RIAA, MPAA, SAG However, if you want read something enjoyable you should check out the incredibly long, but ridiculously thorough and brilliant filing from the NetCoalition and CCIA. It's over 100 pages long, but every last page is worth reading. It says everything I wish I could have said in my letter, but does so in excruciating detail, with tremendous sources to back up each point. It kicks off by going through a detailed list of "fallacies" found in the request for comment itself, as well as in the typical complaints from the entertainment industry, including:

• The objectivity fallacy: highlighting how the studies from the entertainment industry that pretend to be objective are anything but -- and tend to greatly, if not ridiculously exaggerate the problem.
• The lost sale fallacy: of course, demolishing the industry's desire to pretend that each act of infringement represents a "lost" sale.
• The causation fallacy: showing how the entertainment industry always places the blame for its problems on infringement, even if there's little evidence to support that any troubles in the industry were due to infringement. Instead, the filing points out that there are many, many reasons why some companies in the industry have run into trouble that have nothing to do with infringement.
• The innovation fallacy: dismantling the industry's claim that infringement destroys jobs and discourages innovation, noting that it is historically evident that competition breeds greater innovation than gov't-backed monopolies, which can be shown to create economic rents and dead-weight loss.
• The industry size fallacy: a favorite of the entertainment industry, which bundles in all sorts of unrelated industries that just sorta barely are touched by intellectual property (furniture!) to make the industry seem huge, in an effort to imply the importance of extra protectionism. But the filing points out how flawed the methodology is, pointing to the CCIA's own (awesome) use of the same methodology to show that exceptions to copyright contribute more to the economy than the "copyright industries." This part also points out that if the industry really is so big, then it should be well positioned to withstand any challenges...
• The equivalence fallacy: picking apart how the entertainment industry likes to lump all forms of infringement into one "evil" bucket, without ever acknowledging that there are very, very different types of infringement, and understanding the differences is key in determining actual harm and any "enforcement" strategies.
• The theft fallacy: once again reinforcing that infringement is a different beast than theft, and even the Supreme Court recognizes this... though the entertainment industry seems unwilling to admit it.
• The silo fallacy: elegantly highlighting how the industry loves to talk up losses in CD sales, while totally ignoring how other parts of the business, such as live performances, continue to grow. It also highlights how, despite CD and DVD sales dropping, the number of albums and movies being made has vastly increased.
• The relevance fallacy: laying out the argument that, even if you accept the industry's claims of losses, they're often submitting aggregate data that includes a variety of different factors and information that may be distorting the direct impact on specific areas, and setting policy based on such aggregate data could be quite damaging.

Seriously, the entire document is wonderful. It feels like it should be published as a book, and should become required reading for anyone ever writing about, litigating or setting intellectual property policy. You can read the whole thing below:
IPEC Comments: CCIA & NetCoalition Of course, after going through the fallacies, the filing gets to specific policy recommendations, wisely going back to the ProIP bill's language, highlighting how the purpose of the IP Czar is really supposed to be about true criminal infringement and counterfeiting, and arguing that any enforcement should be focused on those issues, rather than stepping in on civil disputes in what is, effectively, a business model problem. The filing also points out that diplomats enforcing US IP policy around the world are often uneducated in the balance of interests that IP law is supposed to hold, and frequently just push for greater laws and restrictions, without understanding the harm it causes. Along those lines, the CCIA takes the time to express its grave concerns over ACTA -- noting its broad scope and potential harm both in the US and abroad.

The conclusion of the document sums up everything nicely:

The spread of the global Internet has facilitated the unauthorized and at times infringing distribution of certain forms of intellectual property, especially copyright-protected content. The ease and minimal cost of copying makes meaningful enforcement costly and difficult. This widely recognized problem has stirred passionate debate about how the problem should be handled by copyright owners, the government, and third parties. This problem is amplified and complicated by the importance of both the content and Internet industries in the U.S. export market, as well as and demands for the U.S. to assert leadership at the international level. This creates a danger of rigid, oversimplified policies toward infringement that (a) make little sense in other intellectual property domains, and (b) undermine the perceived legitimacy of the global intellectual property system.

The solutions to the real and perceived problems the disruptive technology of the Internet has caused for certain entertainment and luxury goods companies cannot be solved by greater government intervention or by shifting more costs to Internet companies. Rather, the solution lies in the evolution of business models to adapt to the new realities of the marketplace.

Seriously. This is an absolute must read, start to finish.

Filed Under: enforcement, fallacies, intellectual property, ip czar
Companies: ccia, mpaa, netchoice, riaa, sag