On Intellectual Property – Part 1: What Needs to be Fixed?

Lately a lot of attention has been placed on the issues of infringement, of music and software pirates, or competing companies infringing on patents, and the actual people who do the creating don’t get paid much. The artists want to make a fair living (or better) off of their labor, and have the satisfaction of knowing their work is valued by their fans. Consumers contend that they want control over how they consume the work, want to not overpay (or pay at all if they are pirates), and furthermore some may have further concerns around online payment and Digital Rights Management (DRM) technologies. Both sides raise some fair and good points.  Both sides also have some major weaknesses in their positions.

As I see it, this will likely be a 4 part series:

  1. Intellectual Property Present State of Music and Similar
  2. Intellectual Property Proposed Future State of Music and Similar
  3. Intellectual Property Present State of Software and Similar
  4. Intellectual Property Proposed Future State of Software and Similar

I will not attempt to wade into patent law and infringement by businesses on each others’ intellectual property.  I will only consider issues involving  consumers against businesses.

I believe most people would want a system that is fair to both consumers, and creators. Our current system of patent and copyright attempts to do this. It works on the principle that producers are granted rights to their works that allow them to collect revenue from those who use them – but they expire after time to allow freer distribution of older work. This is a good idea so far and was the original basis of copyright law in this country under the Copyright Act of 1790 (which has since been superseded several times).

Back in the day, music was consumed at live events; software didn’t yet exist, and copyright disputes were infrequent and usually inexpensive to settle. Since the advent of electronic recording in the 20th century, a whole industry of publishers, record and movie labels, and other intermediaries was created between the creator and the consumer. The idea was that these intermediaries, would make music affordable, increase consumption (and the value consumers get from that consumption), and profit to the creators by reducing production and distribution costs. For many decades, this model worked well.

Lately, 2 problems have occurred in the music and similar industries: (1) piracy: people have begun acquiring music, etc. without paying for it, and (2) the studios and other businesses have done many things to decrease the value that consumers get from music, etc.

As far as piracy goes, less revenue means that creators get paid less for their work and is therefore an obvious problem. Notice that much of the new music put out in this country in the last decade has been crap. Notice that there is no Prokofiev or Miles Davis or BB King or Beatles in my generation. I have 1 friend who makes the reasonable point: ‘that’s because no one wants to work for free.’

A second, less obvious – but equally important problem is the decreasing value provided to the consumer. This occurs in several ways:

(1) DRM technologies reduce effective distribution by limiting the ways a consumer can listen to the music he has purchased. Unreasonably aggressive laws such as DMCA compound this problem by making it illegal for paying customers to unlock their music so they can enjoy it as and how they please. You can’t trade DRM-locked files with your friend for a week the way you could trade him a vinyl record or a CD. Things that would have been considered fair-use in my childhood, such as sharing a video of one’s child dancing to music are now routinely acted against by the industry.

(2) You can’t anonymously buy anything online – whereas you always could go to a music store and pay cash. Online payment technologies require your name and credit card # to process payment (instead giving that info to some intermediary such as Paypal is also not a solution).

(3) The scope of copyright protection has increased beyond what common sense would permit. The law currently permits copyright on works to extend many decades beyond the life of the creator, up to 130 years. This kind of thing does not benefit consumers and it does not benefit creators: it does not pay the creators more nor does it increase distribution. It only increases profit to the intermediaries.

(4) The prices of music appear to me to be un-necessarily high ( juxtapose that against the decreasing goodness of the product). Lets take the 2 cases of making music CDs and MP3s. If I ran a record label, my CDs would cost a maximum of $13.30 and MP3s should cost .38 per song (see below) – I think I could sign decent bands and sell CDs on the market for this.  I also think that a saavy industry insider should be able to do it for much less. I have made the costs as large as I can believably make them. I challenge you, the reader, to find any cost I have omitted or made too small. Please scrutinize my numbers before you read on. (While your scrutinizing, keep in mind that Walmart sells most CDs for $10 and up, and BMG Music Club offers them for $7).

THIS IS HOW I WOULD RUN A RECORD LABEL:

I also notice that, there is a movement by artists against the labels because the artists aren’t hardly getting treated as well as they want eitherIn fact some artists are suing labels for not paying the artists for their music. So what are the record companies doing with the other 1/3 of the cost of a CD? Its either profit or waste. I define waste as any expense that is not required to put a legal CD into a consumer’s hands. It should be much cheaper to buy the same songs on any given CD online in MP3 format, because there are no physical production or distribution costs, and the retail costs are much cheaper to run a website than a brick-and-mortar store.

At the same time these intermediaries cry wolf that their profits are down and they need legal protection. The linked article goes so far as to warn of massive job losses, etc. I haven’t heard of any such thing – not even in the depths of this recession, have you? My sixth sense tells me these claims are balogney – but I can’t prove it without real corporate numbers. Do any of you readers have real numbers?

The New York Times States that Academic research also undermines the intermediaries claims, by raising the point that just because people are willing to pirate for something for free, they probably won’t be willing to pay a large price for it. Furthermore, in book publishing, which I conisder to be a similar industryThe Australian Reports that sales increased despite piracy.

I have similar suspicions about the cost of software and movies, even though I have no way to even guess at their costs. If any of you readers can shed light on this, please post a comment to this blog.

Now, the intermediaries (media labels, and software publishers) have begun working through lobbyists to get immense legal protections for these practices (profits) enshrined into law. Aggressive laws like the DMCA, have tilted the playing field so far in favor of the producers that we now see 6 and 7 figure verdicts in a music piracy cases against individuals. Also the ACTA, which is still being negotiated, will make this worse, by seeking to align the rest of the world with overly aggressive American practice.

Notice that other industries such as movies TV shows, news and publishing of printed materials all appear to me to have a similar cost, revenue and industry structure. Notice that in a similar industry Amazon.com just announced it could increase rolyalties on e-book files from 30% to 70% at the drop of a hat. This suggests to me that the intermediaries are taking an oversized cut of the pie.

That said, I do think that the western concept of law and right demands that people pay for what they use, and I can’t fault creators or intermediaries for wanting to make a living in their industry.  I certainly would like for my favorite artists to be able to live comfortably on the proceeds of their work.  At the same time, I will not fault consumers for wanting a reasonable price, personal privacy and to make reasonable use of materials they purchase.   I won’t fault them for some piracy under such circumstances.  On the basis of the material above, I believe that this is a very complex problem that in fact consists of 2 mutually-reinforcing 2 problems: the pirates and the intermediaries such as record labels.

As a society, what should we do about it? This will be addressed in part 2 of the series.  I think somewhere between the positions of the consumers, creators and intermediaries lies a large space from which a fair and reasonable compromise could be fashioned.

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