Innovation Asymmetry: Why The Copyright Industry Always Freaks Out About New Technologies

from the copyright-and-innovation dept

A few weeks ago, I was in Washington DC to moderate a panel concerning the intersection of innovation and copyright. One of the panelists, law professor Michael Carrier whose work we've mentioned before, talked about an interesting concept to explain why many people in the "copyright industries" freaked out about new innovations, rather than recognizing their opportunities. He referred to it as "innovation asymmetry" and he's now expanded on the idea over at the Disruptive Competition Project's blog.

I define the innovation asymmetry as an overemphasis on a technology’s infringing uses and insufficient appreciation of its noninfringing uses. Why is there such an asymmetry? Because infringing uses are immediately apparent, quantifiable, and advanced by motivated, well-financed copyright holders. Noninfringing uses, in contrast, are less tangible and less apparent at the onset of a technology.

The costs of infringing uses can be quantified. They roll off copyright owners’ tongues: $250 billion in losses to the U.S. economy each year from IP infringement. 750,000 jobs lost annually from infringement. It doesn’t matter if the figures are correct. For even if they are completely disproved, the mere articulation of numbers promises a precision that is difficult to dislodge from the audience’s consciousness.

On the flip side, the power of potential innovation is much harder to quantify.

In contrast, noninfringing uses are less tangible, less obvious at the onset of a technology, and not advanced by an army of motivated advocates. First, they are less tangible. Noninfringing uses are difficult to quantify. How do we put a dollar figure on the benefits of enhanced communication and interaction? Estimates of future noninfringing uses will be less powerful than the actual, hard-dollar figures presented by copyright owners.

Second, they are more fully developed over time. When a new technology is introduced, no one, including the inventor, knows all of the beneficial uses to which it will eventually be put. The path of history is replete with inventions for which nobody foresaw the eventual popular and revolutionary use.

He then lists out a whole series of inventions where the inventor was completely wrong in how their invention would be used. In some ways, this is a modified form of loss aversion. People often strongly prefer avoiding losses to acquiring gains. But it goes a bit further than that, because Carrier correctly notes that you can look at what's around and try to "quantify" those losses, making them feel more "real" even if they're not. But the opportunities and advancements that these innovations almost always enable are things that are less obvious, even to the inventors, even if they always show up eventually.

So you have a classic form of "information asymmetry" in that you can believe you have real information about the potential losses, but not have the information on the very large gains, leading many to simply focus on the losses rather than the gains. That leads to misguided attacks on the technology, moral panics and the like. Carrier hopes that by explaining this concept, more will begin to actually be aware of it, rather than automatically be swayed by the fear mongering.

When policymakers and courts consider copyright law, they must take into account the innovation asymmetry. For if they do not, innovation will suffer. And we will not even know what we have lost.

Filed Under: copyright, innovation, innovation asymmetry, michael carrier

RIAA: There's Been No Innovation Stifling Here!

from the oh-really-now? dept

I already wrote about my response to Michael Carrier's paper on the "Untold Story" of copyright and innovation, in which he talked to entrepreneurs, venture capitalists and music industry insiders to explore how new technologies and services were stifled in the wake of the RIAA's successful legal campaign in the late 90s to shut down Napster. I wanted to discuss the two other responses that the Wisconsin Law Review published, focusing mainly on the RIAA's response, penned by the General Counsel of the RIAA, Steven Marks, entitled Debunking the "Stifling Innovation" Myth: The Music Business's Successful Transition to Digital. Just the fact that they had a lawyer discussing how successful they were at business and innovation should already tell you there's a problem here, of course.

Basically, the paper tries to paint a rosy picture, rewriting history left and right -- where the labels were dragged kicking and screaming very, very, very slowly into the future by various tech services, often having to fight expensive and damaging legal battles. The RIAA describes this as a "success" story, one "of vigorous licensing of new models by large and small record labels, large investments in music services and related technology, and a vibrant digital market that dwarfs the growth in other media industries."

This is kind of hilarious if you actually lived through any of this. Every new service got threatened or sued. The "authorized" services from the RIAA were purposely designed to be awful, expensive and fragmented. Yes, the music industry has moved forward, by inches, over the past 15 years, but never willingly and never with the kind of speed and embracing of innovation that was necessary. Marks also, somewhat ridiculously, pretends that Carrier ignores the content side of the equation. He did not. He repeatedly made it clear from the various interviews that everyone understood the importance of content, which is why they all desperately wanted the recording industry to move forward with them, which it resisted at every turn.

Professor Carrier also mischaracterizes the relationship between technology and copyright. Professor Carrier inappropriately pits copyright against innovation as though the two are boxers sparring for control rather than partners that work collaboratively and interdependently. The desire of consumers to listen to music has been a driving force for technology and recording companies to build and invest in new platforms and configurations, from vinyl record players to cassette players to CD players to iPods.

The only mischaracterization here is from Marks. Carrier (and the people he speaks to) are pretty clear that the innovators wanted to work with content creators. It's just that the RIAA and its labels did everything they could to make that impossible. Yes, eventually walls were broken down, but way later than was reasonable. The industry refused to license digital music at all for years. It put restrictive DRM on it that made it less valuable. It sued left and right and scared innovators and investors entirely out of the market. It had no interest in actually working with innovators. All it wanted was massive upfront payments.

In the end, though, the crux of the RIAA's argument entirely misses the point of Carrier's piece. It basically says "look, there are lots of services today, what are you complaining about?" But the point was never that killing Napster stopped innovation, but rather that it hindered the pace and nature of that innovation. And the RIAA doesn't address it at all. There's a difference between the direction of change and the rate of change, and the key point is the rate of change, but all the RIAA wants to discuss is the direction, which is meaningless. Innovation can't be denied forever, so of course the direction will move forward. What Carrier's piece discussed, quite clearly, was the pace -- and the RIAA wants to avoid that, and pretend that everything that happened between 15 years ago and now didn't happen to get here. If we were at the point we're at today in 2003, they might have a point. The fact that it's taken us this long and we're still just reinventing radio... well, we've got a long way to go and should have been much further along.

The final response to Carrier's paper comes from law professor Randy Picker, who generally is a pretty strong supporter of copyright. His paper is called Copyright and Innovation: Deja Vu All Over Again, which basically argues that, yes, tech and innovation are in conflict, but because Carrier's paper doesn't suggest any reasonable solutions, it adds little of value.

The real question is not whether copyright matters for innovation; the entire history of copyright and distribution technology suggests that it does. Instead, we need to focus on a more nuanced way in which particular copyright settings can matter for innovation. “The Untold Story” does very little of that. So the article is critical of the efforts of music industry incumbents to protect their positions through litigation and also critical of possible reforms to copyright suggested by academics (including by me). But the article does not really say much about how one would write a copyright statute with distribution innovation in mind.

Notice some built-in assumptions, which may not actually be true. Either way, he looks specifically at three areas of copyright law that are often criticized: duration, secondary liability and statutory licenses. He points out that duration is mostly meaningless, since so much infringement is recent material. On the other two points, he admits that they create uncertainty for businesses, but then suggests that existing rules on both have been set to favor innovation:

The critical question here is how we should calibrate the tradeoffs between copyright enforcement and open-ended innovation. Both Sony’s test and the DMCA safe harbors tilt in favor of innovation and sacrifice the enforcement of copyright. Defenders of those regimes often focus on precisely the way in which the safe harbors enable innovation. The classic vision of Silicon Valley innovation is two guys in a garage, not two guys with their lawyer. Critics of those regimes, and “The Untold Story” points to this work, want more tailored rules to better balance protection of copyrights and innovation, but the discussion is precisely about that tradeoff and the relationship between innovation and copyright has not been lost on anybody participating in that discussion.

Of course, it's not clear that it's actually a tradeoff at all. This assumes that "greater enforcement" actually leads to some noticeable benefit -- and we've seen little evidence to support that (at least in any long term manner). On the other hand what we have seen -- which Picker totally ignores -- is that when innovation occurs it tends to massively expand the markets for the creators themselves. The point I've made repeatedly is that a mere four years after Jack Valenti said that the VCR would be the "Boston strangler" to the movie industry, the home video market was making more money than the box office.

These aren't "tradeoffs." These are maxima reductions. They're removing efficiency from the system to protect an inefficient, legacy way of doing business. That doesn't help expand the market. True innovation creates a bigger pie. It may be challenging at first, because people haven't totally figured it out, but it's not about one party losing and one winning. This isn't a zero sum game, like many seem to think. The "tradeoffs" are between a smaller pie and a bigger one, and Picker seems to be upset if the law favors a bigger pie. I can't see how that makes any sense from an economic standpoint.

Not surprisingly, I don't find either of these responses particularly compelling or convincing. They're arguing things based on claims without a basis, and ignoring reality. What Carrier's paper did so well was bring actual reality into the picture: the stories of entrepreneurs and investors whose innovation was chilled or stopped. The RIAA can pretend it didn't happen and Picker can pretend that it doesn't matter, but basic history and economics say that both are not true.

Filed Under: copyright, innovation, law review, michael carrier, randy picker, stephen marks
Companies: riaa

The Aftermath Of Napster: Letting Incumbents Veto Innovation Slows Down Innovation Drastically

from the hard-to-count-what-we've-lost dept

Last fall, law professor Michael Carrier came out with a really wonderful paper, called Copyright and Innovation: The Untold Story. He interviewed dozens of people involved in the internet world and the music world, to look at what the impact was of the legal case against Napster, leading to the shutdown of the original service (the name and a few related assets were later sold off to another company). The stories (again, coming from a variety of different perspectives) helps fill in a key part of the story that many of us have heard, but which has never really been written about: what an astounding chill that episode cast over the innovation space when it came to music. Entrepreneurs and investors realized that they, too, were likely to get sued, and focused their efforts elsewhere. The record labels, on the other hand, got the wrong idea, and became totally convinced that a legal strategy was the way to stem the tide of innovation.

The Wisconsin Law Review, which published Carrier's paper, asked a few people to write responses to Carrier's paper, and they recently published the different responses, including one from a lawyer at the RIAA, one from another law professor... and one from me. This post will be about my paper -- and I'll talk about the other papers in a later post. My piece is entitled When You Let Incumbents Veto Innovation, You Get Less Innovation. It builds on Carrier's piece, to note that the stories he heard fit quite well with a number of other stories that we've seen over the past fifteen years, and the way in which the industry has repeatedly fought innovation via lawsuits.

You can read the whole paper at the link above (or, if you prefer there's a pdf version). I talk about the nature of innovation -- and how it involves an awful lot of trial and error to get it right. The more trials, the faster what works becomes clear, and the faster improvement you get. But the industry's early success against Napster made that nearly impossible, and massively slowed down innovation in the sector. Yes, a few players kept trying, but it developed much more slowly than other internet-related industries. And you can see why directly in the Carrier paper, where entrepreneurs point out that it's just not worth doing something in the music space, because if you want to actually do what the technology enables, the kinds of things that are cool and useful and which consumers would really like... you'll get sued.

Take that away and you get less trial and error, and slower innovation (and less interesting innovation). Look where we are today, fifteen years later. We've basically reinvented radio and put it online. We're barely getting past that stage. You can read the whole paper for more on that, but I did want to highlight one key section in the paper: which is how the content industry always completely downplays the importance of the technology and services. Any time there's a successful new service -- whether it's iTunes or Netflix or Spotify or Pandora or YouTube -- you'll find stories about the incumbents trying to denigrate and mock it, or even outright kill it. They talk about how those services are "nothing without our content," and they get angry if any of those services make any money.

This is ridiculous. Yes, the content is important, but if it was just the content, then those services never would have become successful in the first place. The reason those services are successful was because they actually innovated and provided convenience, access, ease of use and other nice features that were missing before. Too many copyright maximalists simply can't bring themselves to admit that you need both the content and the services working together. When you trash those services, and attack them or try to saddle them with ridiculously high fees, you break down what works, and you actually drive more people to infringing alternatives. Here's a snippet from my discussion on this point (with footnotes removed):

Throughout all of this, a unique pattern emerged. The labels would always massively overvalue their own content, while simultaneously undervaluing the various innovative services. Phrases along the lines, “without our music, they’d be nothing” were heard frequently in arguing why it was all about the content. The truth, however, is that it was the combination of the two that were important. Yes, the services needed the music to work, but so too did the labels need these new services to adapt to a changing marketplace. This should have been obvious from the fact that people would flock to these new services, yet failed to show up to the record labels’ own attempts to innovate or provide something new. However, as soon as any service showed any kind of promise, even if “licensed,” the labels would seek to kill the golden goose by claiming that the rates were unfair, and the innovators were making money unfairly off the backs of the copyright holders (by which they meant the labels, not the musicians, of course).

Take, for example, the brief heyday of music video games like Guitar Hero and Rock Band. For a year or two, the recording industry fell head over heels in love with these games, because people were playing them quite a bit, and they were (briefly) willing to pay a slight premium to get access to music from well-known bands and musicians. Rather than build on that, the industry did two things: it focused all of its attention on those kinds of games, absolutely flooding the market and making people get sick of the game genre, and demanded much higher royalties.

The viewpoint seemed to be that there could be almost no benefits for the innovators. Nearly all of the benefits had to accrue to the labels, or it would be seen as a problem. In fact, the one exception that got through was iTunes, and that was quickly seen as a “problem” by the labels, even as it was dragging them, kicking and screaming, into the marketplace for digital music. The view is one of an extreme zero-sum world, where if someone else is benefiting, it must mean that the labels were losing out. They didn't even hide this view of the world. Doug Morris, then head of Universal Music (now head of Sony Music) explained to a Wired reporter that investing in new innovations that weren’t paying money upfront meant that “someone, somewhere is taking advantage of you.” As laid out in the article, Morris was uninterested in technology, and didn’t even know how to hire a competent technology person, so his focus was on making sure everyone paid up immediately. Anyone making money in the music world without first paying a massive cut were dubbed “thieves.”

I find this tragic. If the entertainment industry had recognized early on that the tech industry wasn't an enemy, but a provider of wonderful new tools and services that helped to expand their market, we'd be much further along. Getting these things right takes time and experimentation, but the legacy players refuse to accept that. They want a perfect solution that fully replaces their old business 100% (or more) without any disruption -- and they want to accrue all of the benefits, without any going to the actual innovators. That, of course, doesn't help anyone, least of all the actual content creators.

There's so much innovation and opportunity available in the music space -- it's just sad that we've only made baby steps since Napster, when we should be leaps and bounds further along.

Filed Under: content, copyright, innovation, litigation, michael carrier, music, trial and error, value