Though sound quality and reception on the radio cannot rival the quality of discs at this time, the record companies rush to draw up contracts to forbid major artists from working in the rival medium.
1920 — Chronology: Technology & the Music Industry
It turns out that the recording industry did experience a drop in revenue as a result of radio. Several lawsuits eventually allowed copyright holders to pursue royalties for music played on the radio.
If we think about the copyright lawsuits of the 2000’s, we think of ordinary people being sued for millions for downloading songs. Yet in the 1920’s the industry targeted lawsuits at those making a profit from playing the songs. This is no different to using someone else’s work to promote your product. And now, rightly, radio stations pay royalties to artists for playing their music.
Copyright Violations as Theft
We’ve reached a situation where the music industry wants to criminalise something that most people don’t find wrong. Those who support fighting copyright violations quickly assert that piracy is the equivalent of theft. Yet the average person recognises theft as removing an item from someone’s possession, not duplicating it.
Of course not all theft has to be physical. Theft of company secrets through corporate espionage is rather obviously theft even though nothing physically is gone. Yet digital downloads are not viewed the same way. Why do we have such a hard time with what seems to be a straightforward moral question? Largely it’s because we don’t look at opportunity cost the same way we do regular cost.
The Cost of Opportunity Cost
Suppose someone prevents you from getting to work and this results in you getting fired. This person impacted you in a tangible way — through loss of actual income. On the other hand if you had been going to a job interview they would have impacted your opportunity to land a job. The two do not carry the same weight.
Opportunity cost represents the absence of a hypothetical gain. Yet in the face of piracy even opportunity is not truly lost. If someone consumes music free from the radio what opportunity is lost by the record label? The original lawsuits that changed the industry targeted those who made a profit from someone else’s work.
This is better described as Quantum Meruit, meaning “what one has earned”. You have earned, through effort and skill, a just reward for what you have produced. If you do not get a reward for your work, this is not the same as someone having stolen from you.
Opportunity cost is better described as losing out on something else that you could have had. This graph is an example of the Production-Possibility Frontier.
Increasing butter from A to B carries little opportunity cost, but for C to D the cost is great.
Here we can see that opportunity cost is representative of a trade-off between two possibilities. But a copyright violation does not fit into this pattern — there is no alternative possibility that is being exchanged. Instead we have the use of creative works without license.
On the Value of Art & Technology
“Who owns the patent [for the polio vaccine]?” — Journalist Ed Murrow
“No one. Could you patent the sun?” — Jonas Salk, inventor of the Polio Vaccine
This much lauded statement itself is the subject of criticism. Some claim that while Silk himself showed no interest in a patent, an application would have failed anyway.
But the quote itself presents a fascinating question. Why do people create art? Why do scientists conduct research? Are some artists, scientists and inventors in it purely for the love of their field? Or is the motivation for profit the core reason that we, as humans, create?
In 2007 the band Radiohead released an album online for free. This freedom came at a time when they pulled free of their record label and published independently.
Meanwhile in the technology industry we read every day about so-called patent trolls. Individuals and organisations who patent software and technological ideas tht they may not even have come up with. They use these patents to bully people in the industry into paying them fees for use of the patents.
On Thursday, the court upheld the notion that an idea alone can’t be patented, deciding unanimously that merely implementing an idea on a computer isn’t enough to transform it into a patentable invention.
Supreme Court Deals Major Blow to Patent Trolls, Wired June 2014
Industries Failing to Adapt
In 2012 I wrote an article “Industries that desperately need to adapt”. In the article I discuss Kodak and IBM — two companies that are both 100 years old. While IBM continues to thrive Kodak filed for bankruptcy.
While Kodak had actually invented the digital camera they refused to pursue the technology out of fear. What did they fear? That digital sales would eat into the profit margins of selling film.
By contrast IBM switched to building computers then creating software and now to consulting. They are world renowned as a leader in business technology because they never stand still.
Movie studios, record labels and even publishing houses are clinging desperately to revenue models that are outdated. They pine for the days when consumers would crowd movie studios and purchase CDs. The new dawn of technological consumption is a scary world. And in response they are choosing to cling to the past.
The Cost of Distribution & Finding Talent
Imagine if we legislated not against consumers but against record labels. Suppose we could make it illegal to profit from the distribution of creativity. Any creative work had to be released globally and simultaneously online. In such a crazy world, would we still have art? What if we applied the same principals to medical research or digital technology?
Of course everyone recognises that such a proposal would be unfair. But would the world be any poorer from it? There would still be ways of making a profit from creative works. But the core tenant of such a world is that everyone has a right to consume the works of mankind. It is such a polar distance from or current world that it is absurd to the highest degree.
We have no right to deny someone water, food and shelter. But denying creative or technological achievements seems like a no-brainer. Especially because the hard part in the distribution of creativity is finding talented people. It’s difficult to guess what consumers will like. The fickle consumer may pass on an obvious future hit because he prefers some strange new sound or image. Hours go into song and script writing, rehearsals and preparations, recording studio hours and not to mention the physical cost of distribution itself.
Yet in 2014 many talented artists are self promoting. YouTube provides a mechanism even for aspiring film makers to show their work. We even find internet based individuals making their way into mainstream media too.
Where Do We Go From Here?
If we allow the industry to decide on the law then the outcome is a given. If Kodak could have found a way to ban peope from taking photos without using film they would certainly have tried.
We face a similar dilemma with pharmaceutical companies and drug patents. Many companies will find ways to extent 10 year patents through any loophole necessary. They do this because many research avenues turn out to be dead ends and drug research is inherently expensive. Yet we balance this with the need to maxmise any benefits from the drugs themselves.
That this is a discussion point in 2014 is a bad sign. Technology always moves at a faster rate than legislation can keep up. Yet each year the rate of technological progress quickens, meaning legislation lags behind exponentially. How will any treatment of digital copyright violations address new advances in technology?
The 3D printer is not a new phenomena. Each year 3D printers get both smaller and larger, allowing us to print a wider range of every day objects. There is even talk of 3D printed food that could help solve our logistics problem of feeding the world hungry.
Suppose I print a replica of an expensive watch. What was lost there? Again an opportunity cost suggests some alternative option was lost and that is clearly not the case here. If the watch maker has his say I would need to carry around a proof of purchase for my watch everywhere I went. How else would I prove that I didn’t 3D print this object?
If I want to register my 3D printed vehicle, why should I not be allowed to? Suppose the process was safe and it produced a car identical to one from the factory — what difference would it make?
Making Profit In a Digital World
It may have surprised you earlier to read that IBM is over 100 years old. If all you know about them is that they are a computer company then it certainly would seem impossible. But International Business Machines have been around for a lot longer than computers. The advent of desktop computers spurned IBM further into the technical world instead of behind.
Other companies have made these shifts too. Today Disney is a lot better known for its 3D Pixar films than it is for its hand drawn animations. Microsoft is losing to Apple in the consumer space because of tablets and smartphones. They are lagging behind because they clung for too long to the forgotten world of desktop PCs. Even large oil companies have started to explore renewable energy technologies because they too see the energy shift coming from the world.
Independent artists are learning that record sales are not the be-all and end-all of producing music. Revenue from Spotify is tiny in comparison to what they can earn even on iTunes, which is tiny still compared to long gone days of selling CDs.
Take Care With Legislation
We need to start from a core principle: don’t crimilaise every day citizens. As a society we already punish people for partaking in activities that many don’t think should be illegal. This is of course the personal consumption of recreational drugs. In fact we allow some amount of recreational drug use in the form of alcohol and tobacco while arbitrarily banning others.
The approach to drugs turns ordinary citizens into criminals for making their own choice about what to put in their bodies. Similarly legislating against copyright violations criminalises an activity that many people don’t think is wrong. And because the ultimate loss is one of opportunity cost rather than actual cost it is unlikely we’ll be able to convince people otherwise.
Similarly any legislation that allows incumbent industries to stay profitable at the cost of advancement is counter productive. Technology will continue to outpace their capacity for innovation and we will just be having this discussion again in another 10 years. It happened with radio and music, it happened with the photocopier and books and it’s happening now with the internet and creative works.
But digital technology continues to pace forward and the legislation we are discussing now lags behind. That said, this is an opportune time for any Australian interested in these topics. If you are interested I encourage you to make a submission to the Public Consultation on Online copyright infringement by the Attorney General’s Department.
Thinking Beyond Today
We need to start thinking about the impact of the growing digital world. And we need to begin immediately. 3D printed technology is only around the corner and it’s not even the tip of the iceberg. We have independently owned drones, technology that can read your mind and devices we can implant into our bodies.
Let’s discuss these issues before they arrive rather than after. It’s not like we don’t have forewarning of their arrival. So what happens when I really can download a car?