Sunday, January 8, 2012

Piracy/Copyright Solution

It is always popular to criticize the wealthy. The vast majority of us harbor stereotypes about the well-to-do: they're heartless, insulated, fragile and interested in profits above all else. This is supported by the fact that it has always been fashionable to support a tax increase on the wealthy given that most of us do not consider ourselves rich.

But the wealthy have made many of the latest products we enjoy today affordable. Often the latest gadget or device to adorn American homes began as playthings of the rich. Business or corporations were the only ones who could afford them, followed by the super rich, accustomed to such luxury.

A good example is flat-screen televisions which were out of reach for most of us just 10 or so years ago. They sold for several thousand dollars each so that only the very wealthy or businesses like restaurants, bars, airports or casinos could afford them. But as more wealthy bought these things once considered a luxury, the manufacturers of the sets could increase production and by realizing economies of scale, reduce the price based on greater manufacturing and shipping volume and efficiency. Soon these sets were under $1500 and many middle class families could buy one. Now that they can be bought for less than $500 they are commonplace in many American homes. That wouldn't have been possible if the very wealthy among us hadn't waded in first.

The same can be said of microwave ovens and videocassette recorders. Around 1980. They sold for several hundred dollars at the time which might be equivalent to nearly a thousand dollars today. They were a luxury that few homes had 30 years ago but as demand increased from commercial or industrial use to luxury item to upper middle class homes and finally into just about everyone's home the manufacturers realized cost-per-unit savings which drove the price down continually and fostered the proliferation.

I wonder if we couldn't solve the problems associated with intellectual property and pirating by following similar pattern of first-use/high-cost with the cost gradually decreasing as usage increases. For instance, it is silly that today one should pay the same amount of money to purchase a movie or a piece of recorded music that has been sold millions of times compared to a newly released film. Demand would seem to be highest for the latest song or movie rather than something that is decades old. It would make sense if the price reflected this demand.

If these entertainment products were very expensive upon release but the costs declined with each subsequent purchase (or block of a thousand or so) the costs of production would be realized much sooner by the artist and production company. And since there are (almost) no ongoing costs to replicate the product into units for sale, the price could drop quite rapidly after an initial windfall. The rich would have first access to these movies and recordings and the poor would enjoy them years after they were released.

Additionally, online retailing has the advantage of easy price adjustment compared with a physical paper tag that appears on goods sold in brick-and-mortar stores. Electronic retailers should take advantage of that.

But the bottom line is: the artist will earn the bulk of the total revenue on a given work much earlier in the process.

Even if the price drop curve was very slight, it would still make sense to make 30 or 40 or 50 year old movies and music available to consumers at a very low price relative to the latest release. The same could be said for music: why should Elvis Presley's Hound Dog sell for the same price as the hottest new single from the hottest new artist? The demand certainly isn't the same. Production companies, studios, artists and rights holders would still make money on the older material and probably likely head off any illegal reproduction if it was affordably priced.

Eventually, after years and millions or tens-of-millions of uses, purchases and plays, these movies and music will be extremely inexpensive to the masses who would otherwise end up pirating them. Current copyright law, which contains fixed terms after which content is in the public domain, is probably based on a similar principle that after a while, works should belong to the culture in which they are created and not to any individual.

Incidentally, I do not favor state-mandated price controls on movies and music but I think the media production conglomerates are beginning to face the facts that their content will be (and is currently) pirated because the price is too high. So it may be in their best interest to re-structure pricing lest they face wholesale theft. This appears to be another case where technology has become too sophisticated for institutions in much the same way that sophisticated financial investment products were not well understood by regulators which led to unfair if not illegal practices.

A recent article in the Columbia Journalism Review uses the examples of eBooks

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