** piracy
Topics: Intellectual Property
31 Jan 2000
From: Ervan Darnell
I've been surprised to recently find several of my friends in the computer
business taking a very lenient stand on music and software piracy, ranging
from "it's not a problem" to "it's a good thing". There are several people
in this group with contrary opinions, I look forward to some responses!
It's easy to get lost in moralizing about this topic (on both sides), which
is either a "believe it or don't" sort of argument. To try and cut through
that, here is my claim: intellectual property obeys the laws of supply and
demand as surely as physical property does. In particular, negotiated
pricing between buyer and seller leads to an optimal arrangement, i.e. the
greatest satisfaction for all parties. Specifically, artificially lowering
the price through piracy leads to a suboptimal arrangement either by
discouraging production and thus hurting the consumer in the long run or by
doing greater harm to the producer than gain achieved by the pirate. Near
zero marginal production cost has no impact on this claim.
I always thought of this as an obvious economic principle (okay, at least
since reading Von Mises). That's the pro argument. Let me turn to the
arguments against that I have heard:
1) "The DAT tax is grossly unfair": True, and irrelevant. The government
has proposed numerous bad laws that fail to address piracy effectively and
do more harm than good. None of that makes piracy a good thing. The
economic efficiency argument does not mean we need another law. I says
only that if there were a way to choose between piracy and no piracy with
the same overhead costs, we should prefer the latter. At best, this point
that says no law will completely control piracy. That's true too but not a
sufficient argument. One might as well say that no law will stop
shoplifting. That's true, but it's no argument for viewing shoplifting as
a good thing to be tolerated without consequences.
2) "Music costs too much": This is nonsense. I suppose there is a basic
humanitarian right to 4 new CDs per month? This argument might make sense
if we were discussing a basic human necessity. We're not. It's a sweeping
argument that justifies any sort of the theft, the person who wants it
simply declares he doesn't like the price. Ultimately, it doesn't address
my primary claim either, which in this context is simply that prices must
be allowed to rise (or fall) to find the optimal pricing point. So what if
production costs are only $1/CD? Maximal utility might still be achieved
at $100/CD to offer sufficient enticement to encourage people to take the
risk necessary to produce certain highly desired music in the first place.
3) "Artists are paid unfairly low compensation by the record labels": This
is really the same problem as (2), a reality-free judgement about what
prices "ought to be". In this particular case, the record labels serve a
legitimate function, credibility and advertising. Their signing an artist
is a declaration that the artist is worth hearing, a bit of advertising
that many need. Beyond that, the label takes the cost of more direct
advertising. If advertising costs more than paying the artist for the
initial performance, so be it. You are free to shop for music that has
never been advertised. A corollary to this claim is that the major labels
are somehow colluding. Evidence? There are hundreds of music labels in
any case (check the Yahoo listings). Are they all a big
conspiracy? That's ridiculous. Finally, the barriers to entry to start
your own label are not that high (e.g. the Beatles started Apple).
The vast majority of music groups fail. Recording labels are ultimately a
way to amortize that cost, i.e. to sell insurance to artists in the form of
paying for their exposure even if they don't succeed. It so happens that
insurance is very expensive because the risk is very high. That's reasonable.
If you think record labels make too much money, then go buy CBS or Sony
stock. Of course, they aren't making outrageous profits. Even if a very
good year had a 20% dividend return on stock investment, rebating all of
that to the artist would not come close to addressing the supposedly unjust
disparity that leads to this argument.
Another analogy that comes to mind is the claim that farmers are not paid
fairly because a $3 box of cereal only has $.10 worth of wheat (of whatever
it is). That's ridiculous for numerous reasons. Hopefully I don't need to
belabor why. Music is the same way, the cost of production of the raw
product can be a tiny fraction of the ultimate retail cost, and justly so.
4) "The recording labels lie about the true cost of piracy": True, and
irrelevant. This has nothing to do with my claim.
5) "The recording labels have resisted new technology that turned out to be
for their benefit, e.g. cassettes": A tricky claim to evaluate, but
granting it for the sake of argument, it's also irrelevant to my claim. If
the recording industry had succeeded in outlawing cassettes, would have
reel-to-reel piracy of vinyl have somehow made things better?
The irony here, as in several of these claims, is that the recording
industry is abusive and the artist deserves more, therefore piracy will
somehow help. No, it takes royalties away from the artist as surely as
profits away from the recording label. If you are worried about the
artist, send him a check for a gift. I don't see that happening.
6) "Piracy is a good thing because it increases exposure for the artist":
Okay, then let's just always pirate music and never buy it, that would be
great for the artist. More to the point, this argues that recording labels
are engaging in an economically inefficient amount of advertising (via
perhaps not enough freebie promotions). This is really the same problem as
(2), telling someone else what their right price should be and then
unilaterally enforcing it. It's ironic too because another part of the
claim is that recording labels spend too much on advertising (i.e. their
cut is too large), but this argument is that they spend too little.
I might as well say that Macy's doesn't advertise Ralph Lauren shirts
enough, so I'll shoplift some and wear them around for advertising value,
and feel smug about it because I'm really helping Macy's.
Granted that businesses do not always make perfect business judgements. In
many cases, they will spend too much, or too little, on advertising. But
using piracy, or shoplifting, to force them to set that amount higher
cannot (on average) may be more efficient. If recording labels
consistently under advertise, then one should invest (or try to start) a
new company that advertises more. Then, you could help the artist and
yourself. I don't see that happening by any of the pirates using this excuse.
7) "Artists like piracy because of (6)": Really? Then, why don't they
just give away their music until they have advertised enough? There is no
need to support piracy, there are perfectly direct ways to achieve this
(without encouraging behavior contrary to the interests of other
artists). The person making this claim didn't list a specific artist, but
I suspect that artist had already sold his rights and thus was really
giving away someone else's property, and not his own.
8) "Everyone does it": Fortunately, this isn't true. But to the extent it
is true, it's a moral argument and doesn't bear on my claim. It says that
I shouldn't sacrifice myself for a lost cause (i.e. pay the asking price
when no one else does). That's a tricky philosophical issue. I'm not
going to resolve it here! And, in fact, I don't necessarily view any
individual pirate as an immoral (for lack of a better word) person. It
depends on the circumstances. However, my claim is simply that we would be
better off overall if this didn't happen. "I succumbed to temptation" does
not necessarily justify doing so being a good thing.
I suppose the real conclusion is that the behavior is driven by economics
and the moralizing follows. Piracy is very easy to accomplish and doesn't
involve the overt step of (for instance) removing something from a
store. Therefore, there is going to be a lot of it, and ex posto facto
rationalization.
===============================================================
Ervan Darnell |"Term limits are not enough.
ervan@iname.com | We need jail."
http://www.appsmiths.com/~ervan | -- P.J. O' Rourke
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