It has been more than three years since the first countries began implementing ‘graduated responses’, requiring ISPs to take a range of measures to police their users’ copyright infringements. Graduated responses now exist in a range of forms in seven jurisdictions. Right-holders describe them as ‘successful’ and ‘effective’ and are agitating for their further international roll-out. But what is the evidence in support of these claims?
[There] is little to no evidence that graduated responses are either ‘successful’ or ‘effective’. The analysis casts into doubt the case for their future international roll-out and suggests that existing schemes should be reconsidered.
Interesting that movie downloads haven’t had a significant impact on video rentals. That will probably change as video streaming services like Netflix become more common.
The music industry has struggled during the past decade due to file sharing and movie business executives fear the same fate. This paper seeks to provide measurements of the effects of peer-to-peer file sharing on the movie industry. We use a long panel of data at the country level containing information on theatrical, video rental, and video retail movie commercial performances, as well as Internet and broadband penetration. We compare the impacts of increased high-speed online connectedness replacing slow-speed Internet connectedness before and after the introduction of the second-generation file sharing technology that has made movie file sharing feasible. This empirical strategy allows us to isolate the effects of file sharing from any other possible Internet impacts on the commercial performance of movies unrelated to file sharing. Our results indicate that the effect of peer-to-peer file sharing is negative and large on video sales, but we do not have confidence regarding the impacts of file sharing on either the theatrical commercial performance of movies or video rentals.
Cory Doctorow has written a thoughtful and interesting article for the Guardian, which argues that pricing externalities will inhibit the creation of public value.
…the infectious idea of internalising externalities turns its victims into grasping, would-be rentiers. You translate a document because you need it in two languages. I come along and use those translations to teach a computer something about context. You tell me I owe you a slice of all the revenue my software generates. That’s just crazy. It’s like saying that someone who figures out how to recycle the rubbish you set out at the kerb should give you a piece of their earnings.
If every shred needs to be accounted for and paid for, then the harvest won’t happen. Paying for every link you make, or every link you count, or every document you analyse is a losing game. Forget payment: the process of figuring out who to pay and how much is owed would totally swamp the expected return from whatever it is you’re planning on making out of all those unloved scraps.
It would be easy to nitpick at the way Doctorow uses concepts like externality rather freely, but that would miss the point of the essay. Underneath those semantics I think there’s a big idea he’s trying to get at, which isn’t really about externalities at all: it is the complaint that things previously available for free are now priced. It is about the intrusion of money into a creative community.
Think back to Dan Ariely’s discussion of social and market norms. The idea is that we act differently in situations where we perceive as market situations, relative to social situations. In particular, we are less generous towards others and less likely to feel guilty about our breaches of social etiquette when we’re in a market situation. Importantly, once a market norm is introduced into a situation it can destroy the social norms very quickly. Social norms are all about trust and once people feel taken advantage of that trust breaks down and turns into a feeling of betrayal. For example, people may enjoy sharing on Facebook but, once they feel that Facebook is trying to take advantage of their personal information for monetary gain, they feel betrayed and no longer trust it. Social and market norms don’t mix well.*
What Doctorow has identified is a social norm of generosity without expectations that previously pervaded web communities. There are companies, such as Instagram, who took advantage of that to build up a large stock of specific investment and then attempted to monetize it. Whereas we expect our bank to try taking advantage of us (market norm), we feel personally offended if Instagram attempts it (social norm). Consequently, there was a huge outcry about Instagram’s attempted change in their ToS, and that loss of trust could damage the firm permanently.
As attempts to monetize online activities continue it is likely that these conflicts between profit motives and social norms will become more common. Companies recognise how valuable it can be to create social norms in their interaction with users. However, that generates tensions with their quest for profits, which can ultimately end up destroying the social goodwill that is the backbone of their success.
* It occurs to me that this may not hold for economists who are trained to think of everything as a market. Perhaps they will just have to believe the experimental work on the matter rather than looking to their intuition!
In the ongoing patent battle between the Android suppliers and Apple:
Apple has been granted a preliminary injunction banning sales of the Samsung Galaxy Nexus smartphone in the United States… just two days after a similar injunction banning sales of Samsung’s Galaxy Tab 10.1 tablet.
A large contribution to the academic literature on technology patents has been made by Bessen and Hunt. On the subject of companies with large patent portfolios they say:
[E]xtensive competition in patents, rather than inventions, may occur if firms rely on similar technologies and the cost of assembling large portfolios is not very high. In such an environment, firms may compete to tax each others’ inventions—for example, by demanding royalties—and, in the process, reduce their competitors’ incentive to engage in R&D.
The outcome of patent litigation and licensing agreements often depends on the size of the firm’s patent portfolio. This creates an incentive for firms to build larger patent portfolios, especially when their rivals focus on patents as a competitive strategy. Economists sometimes describe this type of environment as a prisoner’s dilemma. All firms would be better off if they did not act in this way, but each firm would be worse off if it did not respond to a surge in patenting by their rivals. Under these circumstances, firms may find themselves competing in court, rather than in the marketplace.
It seems that has come to pass even for companies that are considered among the most innovative.
If we follow Australia down the road of trade protectionism for movies, then we all lose out. What do I mean?
Well the incentives for trade protectionism is a prisoner’s dilemma.
As Peter Jackson says, if Australia starts subsidising movies we need to do the same or we will miss out on productions – as a result our best response to their protectionism is more protectionism. Furthermore, if we start subsidising and Australia doesn’t then we get a relatively larger share of the movie industry – assume that this occurs to the point where the tax revenue from the movies exceeds the cost of the subsidies. In this case our best response is to ALWAYS subsidise.
However, there are two issues. Firstly it is in Australia’s interest to subsidise (it is also their “dominant strategy”). And secondly, the decision to subsidise pays off because it hurts Australia. In the end both countries end up subsidising movies, and both sets of taxpayers end up worse off than in the case when neither country subsidises.
This is the issue, not only with the subsidies on movies, but on all trade protectionism. That is why we need international co-operation to avoid this type of beggar thy neighbour behaviour.
Google Books continues to expand their range of available material and it’s great to see. Not only does it increase access to information but, for the material that you have to purchase, it increases the efficiency of the market for information. Previously you had to buy an entire textbook, or purchase a membership at an academic library, to get access to snippets of the text. Now you can buy just that snippet that you want on Google Books! Who does that help? Well, pretty much everyone in the market for information, actually. Read more