In discussions about piracy, even among people who are otherwise ok with free piracy – downloading – those who copy CDs or DVDs and physically resell them on the black market are often condemned, to the point that there is a wide consensus on both sides that the outright prohibition of this sort of activity is not only ok, but beneficial. However, this attitude is only the result of considering only the action itself, without considering the results: in reality, such activity can only be short-lived without legal sanctions on free trade and distribution.
Speculation is an important function in the market economy. If a good is priced differently in one place than another, the speculator will buy it in the cheaper place and undercut the sellers in the more expensive place. In doing so he makes a profit, but he also drives the prices in the two places to equilibrium. Similarly, if a good is expected to be priced differently across time – for example, wheat that floods the market after harvest time – speculators buy the good at its cheapest, and hold it until it becomes more expensive. In exactly the same way, the speculator makes profit, but also stabilizes the price across time. Agricultural cycles are in fact so predictable that speculators can act in such a way that consumers barely notice a difference in food prices from the summer to the winter.
The entrepreneur is also an essential mover of the market economy. When he sees inefficiency in an industry, he sets up shop as a competitor, undercutting the competition with lower prices, or better quality due to his own increased efficiency. This drives all other players in the industry to either improve efficiency at least on par with the entrepreneur, or exit the industry. Thus, like the speculator, the entrepreneur profits by driving the market towards equilibrium. Neither one may ever rest on his laurels with the expectation of a steady profit stream; all profit is temporary and for both is contingent upon the continued provision of new services.
Our physical pirates then are acting both as speculators and entrepreneurs. A record label sells a new CD for $15; the pirate sees that he can reproduce and sell the exact same CD for $5 – a double benefit both of significantly undercutting the record label, and being significantly above his own costs of production. In this way they act as entrepreneurs, who without legal sanctions on their behavior would drive the record labels to the greatest efficiency in production. Thus, their continued profit is, ironically, completely dependent on their being illegal, as in a market where they could operate legally, the proliferation of physical pirates would drive their profit to zero as the market reached equilibrium.
These physical pirates are also in a sense acting as speculators across time. With the realization that the resting price of media is the cost of reproduction, the pirates profit from the disequilibrium imposed by the legal restrictions. Where in a free economy their activity would equalize the price of media to its marginal cost of production, the price floors of copyright law give both the pirates and the media companies a constant profit stream and essentially allow them to rest on their laurels – something completely unnatural in a market economy.
But, you ask, how can artists, actors, and directors be compensated for their work if their recorded media is worth nothing? For the answer, I direct you to the article from a few years back, A Model of Post-Copyright Incentive. Let us not therefore condemn the street vendors of China peddling pirated CDs and DVDs – rather, let us rejoice that the market is in some small way taking hold of China, and let us also hope that the American imagination can be shortly recaptured by the free market.
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Starving Artist says: Jun 02, 2009 at 17:25I read this post, as well as the linked post. They put forth a very interesting viewpoint, but one that does not seem fully formed. The Model of Post-Copyright Incentive seems to refer most directly to the music industry, but also seeks to encompass all creative industries. While concerts may fuel the musically-inclined, what incentive does the plan offer other creators, such as visual artists, designers, and writers? Property theft is an extreme deterrent to artists and photographers wishing to share their work online and still make money from it. Writers have no equivalent of the concert (book-signings aren’t particularly lucrative or fun, and they have no awesome groupies), and with the advent of technology like the Kindle, writers, too, are now at the mercy of information pirates, though to a lesser degree. And there are musicians who, for whatever reason, are unable or unwilling to perform at a concert venue (those unable to afford the proper equipment or an agent), but are able to market their music online or in CD format. What recourse does the model offer them? Are they supposed to stop seeing their endeavors as a money-making job and start to see them as a favor to the people or the market? A thief who steals candy bars from a convenience store because they’re too expensive is still a thief, even if he resells them to the poor. Someone is always going to suffer, and in this example, it seems that suffering will only be conveyed from the consumer to the producer. In any case, your writing is excellent, and I look forward to your reply.
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thrica says: Jun 02, 2009 at 18:08You are right that the Model of Post-Copyright Incentive was not fully formed; I’m considering a new post that incorporates the markets you’ve described. Briefly then, until I get to doing that:
-Under such a regime there would no doubt be a decline in career authors. However, that does not necessarily mean there would be a decline in books. Most non-fiction books are written by people with independent careers in their areas of expertise. This would extend to fiction as well without copyright.
-Visual art is unique in that the original has the innate quality of being original, and is thus worth immeasurably more than any duplicates. As far as I’m aware, this has been the case for centuries (compare the price of Picasso prints with the original Guernica).
-Designers (I myself am a web designer) become contractors, rather than designing simply for its own sake. An architect is employed to design a building for the sake of being unique; likewise designers are hired to make their client stand out in a particular medium. It’s a renewable service, and so something that one could make a reasonable living off of.
-For musicians with no merchandise or means of live performance (I’m one of those too), there is unfortunately no recourse. I realize it’s unsympathetic, but unless there’s a continuing service provided, there’s no watertight way to assure a continual stream of payment (as is often lamented by the RIAA and their ilk).
As for the transferral of suffering from the consumer to the producer, I say, great! The fundamental rule of a market economy is consumer sovereignty – that is, to get money, you have to give the market something it wants and is willing to pay for. And since everyone has to act as a producer in some manner in order to consume, this is the best system for setting in motion a constant cycle of innovation, efficiency, and prosperity in every sector.
Thank you by the way for the thoughtful reply. The most I usually get out of posts like this is “You’re an unsympathetic bastard”, which as you pointed out, is just a matter of where to focus the burden.
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Starving Artist says: Jun 02, 2009 at 20:32I would be very curious to see a post that does incorporate these markets. I’m still not convinced on the “consumer sovereignty” idea, perhaps because your average sovereign consumer usually gravitates towards musicians/artists/writers/designers who are well-known. Your reference to Picasso is a case-in-point; the market economy you describe is lucrative only to big names and those already making money under the current economy. Honestly, one already can hardly make a living on original art, even if they’re making good art, unless A) They’re dead like Picasso, in which case it’s not a living (a deading?), or B) They’re a huge name and they’ve entered into the auction house scene because they’ve happened to meet the right people, even if they’re no better than the artists who sell their work at the state fair. Here, the economic structure fails to take into account the personalities of the individual markets; in the case of the creative industries, the market is often biased by the social scene and cloud of business contacts that surround it. The economy you describe would only exacerbate the unpleasant patterns that already exist, as talented creators who operate on the fringes are already tilled under by the glut of artistic material that enters the market. Consider J.K. Rowling, for instance; she was rejected by dozens of publishers before she got a lucky break, and now she’s making millions. But she did nothing to improve the quality of her material to appeal to the consumer; she submitted the same manuscript dozens of times and just happened to strike one publisher’s fancy. J.K. Rowling herself could still be sitting in bars scribbling on napkins. And that’s where dozens of writers are, because they haven’t had her luck. Writing and art aren’t controlled directly by the consumer, because to be initiated into the market in the first place, that is, to be seen at all by the potential consumer, the artist or writer must act through a middle man who either ensures or ruins his chances for success. It’s very socially-based, and it’s quite unlike the supply-demand push and pull that comes with material goods that everyone needs and won’t go without.
This rant is tangential from my first comment, but describes my irritation at the market economy as far as it applies to creative pursuits. If they are viewed in a cold light, art, music, and writing are simply products, but consider the fact that they operate within a unique production environment, one that requires creators who aren’t famous to work two or three jobs to support what they would like to be their job in the first place. And there’s no way to streamline the creative process itself or make it more efficient; that’s one thing that has remained the same for thousands of years. So yes, it seems unsympathetic, but no, I don’t think you’re a bastard! And you’re entirely welcome; a thoughtful post deserves a thoughtful reply.
And for what it’s worth, there’s already been a tremendous decline of books and all other print media. And I know people who pirate e-books! I do believe that books themselves are going the way that the CD has gone, and for many of the same reasons.
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thrica says: Jun 02, 2009 at 21:11Yes! This is exactly the problem with copyright laws: because the costs of media consumption are currently so high, people being risk-averse aren’t going to try out things they don’t already know about. If I’m a poor student and all I know is that all my friends like Nickelback and Harry Potter, I’m not going to venture much past those media monoliths if it’s expensive to do so.
This has also been a problem in the past because the costs of acquiring physical media for the consumer and stocking it for the retailer were rather high compared to the breadth of stuff out there. But technology has a tendency to lubricate the market and smooth its imperfections by reducing costs like these: the internet has taken the costs of discovering new media to virtually zero (at least besides the time invested). It’s the record labels/publishers/studios that have an interest in homogenous media: if they can get a sum of money from one act or the same sum of money from 10 smaller acts, the former is obviously a better investment. It’s the internet (especially with the rise of social networks and recommendations; I’m indebted to last.fm for the discovery of so much music) and piracy that obliterates the monoliths and gives people true choice.
Also, the decline in profits from creative pursuits is balanced by a decline in barriers to entry. If anyone can produce and distribute art and media on the same level as only the big players used to be able to do, it becomes less about “who gets lucky” and more about “who’s good”.
We’re only in the beginning stages of it now, and the government and media companies are scrambling to stop it, but the monoliths are crumbling. Good riddance, I say.
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Starving Artist says: Jun 02, 2009 at 21:38Sorry for being belligerent. One more comment and I’ll shut up. Here’s the thing: it’s not any more expensive to download something eclectic and intelligent off iTunes than it is to download Nickelback (God forbid you download Nickelback). A hard copy of Harry Potter costs just as much or more than something that is more unusual and intellectually stimulating. So it’s not a case of cost hierarchy; it’s a case of not wanting a cost on something, period! You said it yourself, that last.fm helped you discover music; I’ve found a great deal myself through last.fm, Pandora, Imeem, Ruckus, and Spiral Frog, all of which are (were) legal. I still have an issue with the contradiction and seeming dishonesty of phrasing. Piracy does not simply reduce costs, it eliminates them at the expense of the artist, and I disagree heartily with its use as a media discovery tool.
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thrica says: Jun 03, 2009 at 1:58No worries; I always enjoy an invigorating discussion. Hope I haven’t come across as belligerent either.
The point isn’t that it’s more expensive to download something more unusual and intellectually stimulating; it’s that it’s more risky. If I buy the CD of an underground band, which may even be cheaper than that of a mainstream band, I’ve still wasted that money if I end up not liking them. Thus I’m less likely to go exploring beyond what I hear on the radio and know that I like.
Sidenote: Though there are places to go to preview without the option to download, there’s always the tradeoff between convenience and security: either people will figure out how to get an MP3 out of the preview (Myspace, last.fm), or they will be worthless for figuring out whether you like the song (iTunes 30 second previews). Same with DRM: either it’s strippable (Ruckus, iTunes), or it’s not worth bothering with (at least one abortive Sony attempt).
The benefit of piracy isn’t just in terms of cost, but in taking out the middlemen. The state of culture you lament, the fact that people have to be selected in order for people to hear about them, that’s the result of these middlemen. It’s dying, and piracy is the guillotine. Consumers and artists are directly transacting with each other en masse for the first time in history, and it’ll only get better as technology improves. The vast majority of the expense of piracy falls upon these middlemen, who have by this point long outlived their usefulness; not the artist.
Disclaimer: I still speak mostly with regard to the music industry, simply because I’m most familiar with it. Everything also applies to the movie industry however, and to a slightly lesser extent to the publishing industry. You may educate me as to the workings of the visual art sector; I’d be interested to get a perspective on how that goes on.
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fallout11 says: Nov 14, 2009 at 8:58Solid discussion, and salient points.
One final note just to hammer Thrica’s point home – If the next J.K. Rowling could have skipped the “get lucky and finally find a publisher who will accept my work” step and simply self-published electronically, would not he/she been better off? Especially once word got around concerning the popularity or merits of their work?
This is even more true should that next artist NOT have gotten lucky in the old paradigm (as many noted artists themselves have recently pointed out, namely David Drake and Richard Bachman/ Stephen King among them). Piracy lowers the cost (and randomness/luck factor) of entry to the market, giving greater exposure, accessibility, and proliferation, if at the ‘cost’ of individual item profits. Cory Doctorow has a good piece on this same viewpoint, and makes a solid case.