Joho the Blog
An Entry from the Archives

I have a hard time thinking that the "your content is ours" line would go over with them at all, but I also don't know how to tell them what we'd like them to understand.

We won't buy their stuff if we can't do what we want with it. If it's been castrated to the point that it can't be reproduced at all, then it's just not worth buying.

There's something so wrong with these business people not knowing what their customers want. If they can't or won't provide it, I can respect that, but this ignorance is a disgrace.

If their customers didn't want it, they wouldn't be making ANY money. Business at any level is not primarily about delivering what your customers say they want. It is about making a return on investment. Delivering a product/price palatable to your customers is a requirement to realizing a positive ROI, but it is not the raison d'etre. This ought to be the number 1 lesson from the dot-com bubble. It is not inconsistent with striving to make great products.

More often than not, "palatable" is not what loud customers say, but what most customers do. Let's say I have a software product, and I release it under two different names. Both are freely downloadable. One asks for $25 to use the product but has no restrictions. One demands $25 to completely unlock functionality. Which one do you think makes the most money and how wide do you think the spread is? Actually, this experiment has been conducted. The conclusion of the article is that after all the prereqs of a good product are satisfied, people need a reason to buy rather than not buy. So, what are we to conclude but that DRM is a revealed demand of this market? And when someone says that "we the market don't want DRM", what are we in the copyright industries to conclude about their motivations, observations, or integrity? Forget that, who cares... What are we to conclude about their perspective into our businesses?

"We are doomed"

Sigh ... You said it, not me ... :-( ...

Brad:

That's an interesting experiment, and I thank you for the link. However, I think there are some important differences between DRMed music/movies/books and crippled shareware.

1. The crippled software is free, but the paid software does what I want. The paid DRM is still crippled.

2. Once I've paid for the software, I can put it on whatever computer I buy (as long as I still have the registration code). DRMed music is tied to one machine; I upgrade, I lose.

3. Software is not part of our culture (at least not in the same way other art is), and there's just no fair use issue.

I've lost a lot of my own work because it was stuck in some proprietary format that I couldn't take to my new computer. Losing art that I paid to experience isn't nearly the same thing, but it's the same lesson: open formats good. I suspect that in the years to come, other users (customers) will come to learn the same lesson (the same hard way I did).

I could be wrong. It may be that customers will never learn, and they'll keep locking themselves into a dead end. There was grumbling over having to repurchase one's whole music collection on CDs when LPs disappeared, but people did it. It was the only game in town! Perhaps they'll do the same in the future, moving from one DRM format to the next or repurchasing the same media for new computers as they upgrade. I hope they don't, because they're creating the market that I have to live in too.

Kyle,

Your point (2) is not necessarily true. Ambrosia software found a two-stage registration process involving their server caught a lot of piracy attempts and increased their revenues. So expect more software to implement such DRM. The enforced policies will probably tend to be reasonable, e.g. allow 10 computers before complaining, have a support process that judges if the "customer" is a crook, would buy an upgraded seat license, or just unlucky. But expect way more of this because such systems increase revenue. Perhaps in the case of TurboTax, they bomb because they are too strict or the management too spineless or competitive pressures too high on this issue. But many, many other products are doing this kind of thing now and most commercial software developers are thinking along these lines.

To music... with iTMS for example, a good, objective, data-supported case could be made that if there were no DRM, the supply of music available there would not yet be what it is. DRM makes publishers comfortable with supplying the digital marketplace. And a case similar to the software case can be made that if customers don't have to buy to make use of a product, they won't buy as much (and probably much less). Napster is a perfect example of mass freeloading "because they could".

The positive signal Apple is getting from the market it has placed itself into is that a reasonable DRM system is responsible for their supply of music and it is responsible for their volume of sales. It is much easier for me to drop $10 on 10 songs I like at iTMS than to gather from friends and have to go through the exercise of circumventing the DRM. Even if, as Cory (with his double Ph.D. in encryption and human behavior) argues to MSFT that all DRM is circumventable, there is still a local incentive for me to buy besides being occasionally honest. The market tells Apple that DRM is worth doing, just as it tells me as a software developer that DRM is worth doing. Those see that as a market failure -- I have to wonder why they wrap their message up in the "market" concept. A little disconnect there....

David,

Thanks for representing us so well.

Brad. There's some price elasticity here and some issues with quality as well. Compare iTMS at $1 per song with limited DRM and limited quality to AllOfMP3[1]'s $0.01 per Mb in high quality encoding with no DRM. I've spent more on music from AllOfMp3 per month than I have at Amazon on CDs for some years.

It's not just the cheap prices but also that they're selling something I want to buy. 192Kb VBR MP3s with no DRM. Now I've got a reliable source of quality product, I no longer use file sharing apps so that lack of DRM doesn't matter because I'm not sharing.

The price elasticity argument is the question of where the price point is that I switch from being vaguely illegal to being vaguely legal. For me, it's somewhere between $0.01 per Mb and $0.05 per Mb and well below iTMS $0.25 per Mb. So can the record industry survive on $0.20 per song? How about $0.10?

[1]I firmly believe that http://www.allofmp3.com is the future of online distribution of music and probably video. I'm still amazed more people haven't heard of it. I just hope they can manage the bandwidth growth.

absolutely right on. new book by Michael Wolff nails the problems of "Media". my favorite episode is where he asks Terry semel and other big cheeses if they have a Tivo and what they think. not one has a clue. and yet they keep buying content and transmission companies in hopes of synergy...

Wow, I wish I had known about that. We're in production at work so it wouldn't have done any good. Next time, though, the beer or smoothie or pick your poison is on me. Judging from my own recent experience with iTunes, I'd say you're right, although we've been warning 'em for years now. I get a free device from Audible.com for subscribing through a work discount program. The installation software of the device points me to iTunes. I get to iTunes, buy an album, and discover I can't load the file onto my device for subway listening. I discover iTunes is in an arms race that it can't win with Hymn. I feel cheated. Imagine rights management for vinyl. There'd be no hip-hop today, no scratching, no Grandmaster Flash, the James Joyce of mixological mind memes. I decide to stick with Listen.com for my desktop listening pleasure, it's a utility, not a commodity model, it pipes as much or as little music as I want into my brain. What the hell, the device was free: Into the "sort" drawer to languish with all the other detritus of history until it becomes an e-Bay nostalgia item.

Brad:

You say that Napster is a case of people freeloading because they could, but I say it was a black market, trading in something that simply was not for sale. Nobody was selling online music at that time, DRM or otherwise, and even today nobody can compete with the breadth of music that was available on Napster back then. If I want the convenience and control of digital music, where am I to go? Now there's iTMS; back then, there was only Napster.

I'm not sure what you mean by "market failure," but when I've heard this term used, it describes a market where there are customers willing to pay a profitable price for something, but it's not made available. That is, we have music which costs a penny and people willing to pay a quarter, but it's only offered for a dollar, if at all (all numbers made up).

Overall, you seem to be saying that people buy music because DRM forces them to. Years of (open, DRM-free) CD sales, even in Napster's heyday, seem to say otherwise. You seem to be saying that companies won't make music available without the secure feeling that DRM gives them. That may be true, but I don't think it's "the market" driving that; it's just fear.

Kyle,

The first definition of "market failure" that Google gives (define: market failure) is: the inability of markets to reflect the full social costs or benefits of a good, service, or state of the world. Therefore, markets will not result in the most efficient or beneficial allocation of resources. Let's work with that definition. We have an objective outcome in the market, a result of all the participants that play and information that flows. We have a subjective judgement that because DRM is involved, the market was not working beneficially. If you were making your living from selling music/software/whatever, and you saw that when it was easy for people to get the stuff you created without buying, en mass they bought less, and when it became more difficult for them to skirt the cash register, en mass they bought more, you might conclude that DRM is working quite beneficially. This is precisely why I take issue with David's premise from the previous post that it is objectively desirable that everyone have free access to all content and Cory's pseudo-intellectual schtick that DRM is bad for everyone. Sorry, the determination depends on what side of the equation you're on.

You say it's not the market driving the DRM, it's "fear". Markets are more than just the people. Information is an important component as well. Fear (and its brethren uncertainty and doubt) are just information, and they have tremendous effects (both positive and negative, depending on which side of the issue you fall -- just think "global warming" if want to contest that fear is always bad) on all sorts of markets. "Markets are conversations" -- meaning they are participants and the words exchanged -- says it best. But they are not a mechanism to enslave producers. You can expect some (or many) producers to balk at playing in markets if they feel they cannot make a return on their investment or they feel that participation diminishes the value of their assets. Those calculations, and means they take to mitigate the associated fears, are as much a part of the market as the perceived overwhelming hatred of record labels.

If you were making your living from selling music/software/whatever, and you saw that when it was easy for people to get the stuff you created without buying, en mass they bought less, and when it became more difficult for them to skirt the cash register, en mass they bought more, you might conclude that DRM is working quite beneficially.

I don't think anyone has done a real comparison. Offer some music with DRM and some without on the same site in the same time period. See how they sell (online and off), and adjust for the relative popularity of the music (if that's even measurable). Until that sort of experiment is done with the product we're talking about (not software), I can't see this debate being closed.

Do downloads hurt sales? Don't know.

Does DRM help sales? The best argument I've heard is that it helps because without it, the content producers wouldn't have provided the content at all. This is like saying the gigantic dent in my car helped sell it because I wouldn't have put it on the market otherwise.

The more precise question I'd like answered is, "given that you're going to sell music online, will it sell better with, or without DRM?" I think that, unfortunately, many customers are indifferent to DRM, and it doesn't really make a difference in sales. I'd like to think that as more people experience it and come to understand it, they'll want less of it. It is, after all, simply a lower quality product.

David,

A couple of thoughts:

The greatest challenge for the content companies IMHO is how the explosion in distribution changes all the economics of their business. What has been a hit driven - venture capital style model has seen the erosion of limited distribution which deteriorates their margins. When the promise of a 'hit' to fund the 'misses' disappears, then the model isn't sustainable. In a world of previously untold distribution capacity, yes content is still king, but the marginal value of the content has to outweigh the cost to produce it. This is fundamental. In this world, content creation becomes less of a large scale enterprise and more of a cottage industry. I recognize that 'big hit' style content will continue to be produced, but the majority of content must become cheaper to make and has so if you consider non-mainstream music, reality based TV. etc.

The interesting thing about this sort of distribution is that it gives you an extremely powerful mechanism to market to a select audience in an extremely cost effective way. It really is a rethinking of the whole business, and requires a different skill set for success, but it is possible and I would argue, the inevitable outcome of what is occurring.

Brad, thanks for sticking with it. I appreciate your comments.

A nit: "...David's premise from the previous post that it is objectively desirable that everyone have free access to all content" Hmm. Not quite what I meant. _All things being equal_ a world with free access to all the music would be (objectively?) better. But I tried to be careful to abstract that from real-world issues like its effect on markets.

David, in the Barbarians post, you wrote, and I quote the minimum I can see that preserves context: Forget every other consideration — even though they're fair and important considerations — and see if you can acknowledge that a world in which everyone has free access to every work of creativity in the world is a better world.

Had we been talking about nationalized health care, sorry, I cannot forget every other consideration, because every other consideration is what makes it in my mind and most opponent's minds a really bad idea. But I have to say about the health care debate. At the very least, when Hillary decided she wanted to have a national health system, she held months of secret meetings with candles and witches and warlocks and Tikkun Magazine and they came up with a complex plan that even an NFL Quarterback who aced the Wunderlich Test would have trouble getting his head around. I'm not a fan of complex plans, as I trust markets where each party has rights to the property they bring to the table to sort out the complexities on their own (even/especially when grandma's life is at stake). But at the very least, Hillary's health care plan recognized that 1/8 of the nation's economy was a really, really, really complex system!

Back to music. The only plan widely discussed as a replacement for the status quo is the EFF Plan for mass compulsory licensing. Let's lump it into "forget every other consideration", that such a system can be managed among 300 million Americans or 6 billion earthlings, when we the most we've ever done something like this for is a few thousand registered artists. What happens when Joey is a quarter short on his $5 monthly payment? More to the point, what hard incentive is there for people to pay the fee? From what are they excluded should they fail to pay? You look at a plan like EFF's from a professional artist's POV and it's like, OK, heres's the great world where everyone gets something for next to nothing, and theirs great late 90s Chinese Math, but what makes even the honest people pay?

Another thing DRM has gotten you, BTW, is unbundling of songs from albums sanctioned by the artists and their authorized distributors. It is said that the market does not want DRM. Well, the consumer part of the market definitely wants unbundled songs. The producer part (including those who finance production and purchase distribution rights) wants DRM. They have a conversation and commerce takes off. In fact, they still have a conversation... DRM isn't hindering sales to the point where the model is unprofitable. So when the claim is made that it's a perceived market failure or bad for business or whatever, the claim needs more motivation and more proof beyond "I just don't like it".

DRM is a blight and an infestation that destroys the crop. We who visit the market will choose the produce that is untainted. The unscrupulous farmer who negligently allowed his own crop to become infested may wish to set fire to all the surrounding farms so that only he has something to sell at market.

My analogy is apt.

--Shmoo, of Electric Gypsy
Support Local and Independent Music!
Copyright Reform NOW!

Brad, I understand you to say the market is negotiation. You must be right, and it follows that the session David attended, his speech, his post, and these commentaries, must all be part of it. I gather that you’re simply trying to make a living the best you can under the conditions prevailing. That you have managed to do so until now must be a tribute to your skill, but you say in so many words that you are unable to contribute unconditionally, and there are sacrifices you simply will not be able to make.

That is fair enough, but I think the rest of us, who don’t make our livings by copyright as you and David and other artists and professionals do, have a perspective on sacrifice, also. A frequent way of expressing it is, that there is a commons that is in danger of enclosure. I gather that you feel that the free play of private interests is the best means invented so far to settle such matters. I think that some of us are not so sure that is always the case, particularly in an era when it has become evident that some interests have more privacy than others, carry more weight in the marketplace, and at best constrain the free play. Patenting common practices and prior art, copyright in effective perpetuity, and the potential to track every strand of arguable influence and do away with any degree of privacy have all contributed to this uncertainty.

In England’s historical enclosures, the lord of the manor usually alleged that it was for the greater good of the commoners, that is, those who used the commons, and would result in the cultivation of derelict land and the like. However sometimes such “improvements,” once completed, turned out to be a new deer park or similar private adjunct to the castle or manor house.

Do you blame us commoners for being suspicious?

"kill the internet" --?? I'm sorry that doesn't follow.

DRM will not "kill the internet" -- hyperbole . Okay so a kid won't be able to put a snippet of a movie in her social studies paper -- how important is that anyhow?.

Makes some internet activities unpleasant. Stifles ....what exactly? Creativity? I don't think so.

But then I don't Tivo and can get by without music -- and I suspect there are lots of folks in the same mode.

(I don't like DRM, I will not own a piece of copyprotected software that requires authentication, readily abandoned TurboTax and will never Intuit again, so I'm stuck with old technology for a long time to come. So what, I use WordStar 6, ya in a Dos window on every Win OS thru XP. I'd be pissed if I paid $15 for a CD and couldn't make a backup copy -- but think of how many old vinyl albums I bought that weren't backed up -- the idea of a backup copy and the right to one is fairly recent.)

Johne, you have the right to be suspicious, sure, that is information in the marketplace. Some who claim that DRM is non-effective have the right to spread misinformation, yet another input into how we decide what we value. But a customer that approaches me with suspicion and spouting non-truths, and then maybe pirating my stuff... they get suspicion right back. Even if we disagree, it's good to keep a conversation going so we can at least be aware of each others' perspectives.

Schmooo... market behavior reveals a lot about people's true preferences and values. The iTMS and shareware examples run counter to your claim of "we who visit the market". Your attitude is less constructive.

Publishers are dinosaurs running out of oxygen. Everyone seems to think that art comes from publishers, and if publishers are finding things hard, well let's all chip in (with an Internet tax) and divvy the money up among the publishers according to their output.

Forget the publishers (at least on the Internet).

Our art will come from artists.

Face it, there's a world of people with a good DEMAND for art, and a wealth of artists with a good SUPPLY.

Believe me, they are not going to stare blankly at each other across a bottomless chasm wondering how they can convince the other to exchange money for art.

The chasm is what people imagine will replace the dinosaurs when they're finally gone. That's just fear of the unknown future talking.

There will be no chasm. Artists and audience will meet and do a deal. Art for money, money for Art.Everyone will be happy.

No need for a cockamamie EFF tax.

Fourth, they're going to win. They own Congress and neither Congress nor the entertainment cartel sees any reason to compromise. Their Lakoffian frame tells them that they're stopping theft, end of story. So they are going to kill the Internet and they don't even know it. The worst of Larry Lessig's nightmares is coming true, at least in the US. Sure, there will be sophisticated hacks and analog holes and guys in back alleys with soldering irons who'll remove the hardware restrictions so your kid can include a snippet of a movie in her social studies paper. But that's exactly what losing looks like.

Tim

At its heart, this is merely a pricing problem and a matter of efficiency.

There is some price P(1) at which the rights holder will be more than happy to allow you to make as many copies as you like. There is another price, P(2), at which the consumer is willing to pay for a copy which cannot be copied or further distributed. And there is some third price P(3) at which the consumer is willing to pay for some limited reproduction rights.

As to the exact amount of those prices, well, the more "helpers" and intermediaries, almost certainly the higher the price.

What we are hearing from the entrenched bureaucracy currently in place is little more than a whole lot of weeping and wailing about the coming demise and untenable position of their status in the equation. They are sitting ducks for disintermediation and they know it, but are afraid to admit it.

On the one hand, the onus is on them to justify their value, not on the consumer to justify a lower price. Let's face it, the consumer does not know who all of these people in the middle are. Hell, even the soon to be a millionaire, drug addicted guitar player does not know who all of these people in the middle are, and it is the artist who pays a far dearer price for their services than the consumer. For it is in the dimunition of compensation that the artist pays for their services. The more paid to the middle, the less the artist producer receives.

The middle controls the game, the terms, the production, the distribution and the pricing, a position that works only when no one knows the details. When everyone knows, they are out of business.

Now that said, if you don't want to pay, then do so in a way that will be felt by the middle - don't buy - not even the first copy to upload. Only by hitting them in the wallet will you make an impact. If they think you are simply going to steal from them, they will lash out with law enforcement in unpredictable ways (read: you might get caught).

If you are a consumer, and absolutely must have "it," whether "it" is music or movies or whatever, then be honest with yourself about this sorry fact, and be a man! Prepare to pay the price of admission. If everybody stops buying, believe me, the market will change very quickly.

If you are an artist, wise up, open your eyes and look at your alternatives. You can cut a deal with the powers that be, or you can look at other alternatives. If you look for other ways to strike a monetary exchange with your audience, you will find one.

If you are in the middle, get real. The value of your services may be justified, but the way in which you are paid may have to change. You may have to give up control over key factors in the business. You may have to learn how to dimensionalize your pricing structure to accommodate P(1)...P(3)...P(n). You may have to learn how to coopt the pirates and convert them into sales people and/or distributors. You may have to contract for the artist to cut bonus tracks that are rights free and consider that a selling cost, thereby creating a legitimate class of content that is legal to distribute while continuing to enforce your rights on the balance of the material.

Or we can simply continue with the current scenario. It's your choice. But, remember, there is a price for everything. This is simply a pricing problem.

In (short) future, the concept of money will be alien from human mind. As a consequence, the concept of price will too. A little bit of imagination would not be bad ...

If you are in the middle, get real. The value of your services may be justified, but the way in which you are paid may have to change. You may have to give up control over key factors in the business. You may have to learn how to dimensionalize your pricing structure to accommodate P(1)...P(3)...P(n). You may have to learn how to coopt the pirates and convert them into sales people and/or distributors. You may have to contract for the artist to cut bonus tracks that are rights free and consider that a selling cost, thereby creating a legitimate class of content that is legal to distribute while continuing to enforce your rights on the balance of the material.

The solution is not to suggest better ways of doing things, because they're simply deaf to anything we have to say. The solution is to design & implement new systems that give us a greater voice in government, using network effects, reputation systems, collective intelligence, wise crowds, smart mobs, etc. etc. Then when we have the ability to be heard when we say something, that's the time to bring forth our proposals for change. Until then we're shouting into the wind.

Tim

Here's a start towards what I'm talking about: IPac, the Intellectual Property PAC.

Tim

David,

Thanks for triggering this dialog. It's interventions like yours that results in a better understanding and ultimately advancement in these issues. Keep 'em coming.