Sunday, May 06, 2007

Kopy Wrong

Buoyed by the daring behavior of Jonathan Lethem, most recently documented in this piece in Wired Magazine, and increasingly finding myself irritated by what seem to me to be undesirable consequences of copyright, e.g., the bankrupting of university libraries due to the hyperinflation in scholarly journal pricing, the need to invest heavily in Course Management Systems (that many of the users find clunky) in significant part to provide an acceptable way to distribute copyrighted materials in support of instruction via Fair Use, to the obnoxious video that RIAA has promoted to “educate” our students about file sharing, I’ve decided to write this post to argue that the law is terribly wrong in its present application and we who are not part of the motion picture, recording, or publishing industry should fight back to get to something more sensible and more beneficial to all of us.

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I’m an economist and I’m going to give a little economic analysis. The critical variable I’ll look at is the term of the copyright. Under the first U.S. copyright law, the Copyright Act of 1790, the term was 14 years, renewable once for another 14 years after which the item entered into the public domain. That original law required registration for copyright to obtain. Under current law, there is no registration requirement. Copyright is obtained once the work is fixed in a tangible medium and the term at present is life of the author plus 70 years.

Reading this brief history of copyright at Wikipedia, I was interested to learn that copyright first emerged not to protect authors but to protect printers, soon after Gutenberg invented the printing press. Copyright law addresses the appropriability problem; absent such protection there is weakened incentive to produce copies in the first instance. In promoting the original production the copyright law addresses the underlying goal – to encourage learning via dissemination of the authored materials. But copyright law recognizes a tradeoff between providing the requisite incentive for original production of the item and granting access to the public once the item has been produced. Efficient solution of the latter requires the distribution of the item at marginal cost.

The law trades off these two needs by granting a period where the copyright holder has a monopoly in the distribution followed by a period where there is perfect competition because the item is in the public domain. A socially optimal term provides the right balance between these. The social optimum contrasts with the monopoly solution, which grants the copyright monopoly in perpetuity.

If we think of works that are similar in the benefits they provide (have a similar demand curve) but differ in the up front cost to produce the work, then any fixed term structure of copyright will encourage some of these works to be produced, those where the monopoly profits to be earned during the term of copyright cover the fixed cost, while other works won’t be produced, because the fixed cost is too large. Thus the term structure of copyright trades off those works that are produced, on the one hand, with access to the works once they’ve been produced, on the other.

There are many factors that can affect the optimal tradeoff and clearly among those are the technology used to produce items and the type of items that are subject to copyright. Originally copyright covered print items only, but now it covers any type of item that can be fixed including photographic images as well as audio and video recordings. Another factor that affects the tradeoff is the stock of items already produced that are currently under copyright. Interestingly, the greater the stock the shorter the duration of the optimal term, but the greater the incentive for copyright holders who are earning monopoly profits from that stock to extend the term. This, I believe, is one of the fundamental sources of the problem.

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I’ve written the above in a flat way because I believe the economics I’ve just presented to be entirely uncontroversial; everyone would agree with what I said so far. Now I’ll start giving my spin. There are two possible explanations for why the copyright term has increased over time. There is an efficiency argument – notably that the fixed costs of the items subject to copyright has increased and at a rate faster than the rate at which demand has increased so we need a longer period of time to generate the revenue to cover those. Think of major motion pictures today that cost in excess of $100 million to produce. And there is a different type of argument – that the Congress which writes the copyright law is captured by the big copyright holders, as represented by the MPAA and the RIAA, for example. Under this second explanation, we’re moving further away from the efficient solution and closer to the monopoly solution. I believe that’s the case.

So now I want to consider different types of content and the term structure that would seem appropriate for it, starting with different type of print, then software, then audio recording, and finally video. I’m going to do this purely from a personal perspective, how I see the tradeoff. Frankly, I can’t see why we need more than 14 years, without renewal, in any of these cases and in most of them the term could be a lot less. I want to work through a bit what a shorter term would imply. And then I want to conclude with what we should do given that citizens like us don’t have the wherewithal to lobby Congress in an effective way to rewrite copyright law.

Let me begin with blogs such as this one. This post is copyrighted at present and at the bottom of the blog there is a Creative Commons license. But there is no need for copyright at all in this case. Indeed, most of us bloggers are aching for the rest of you out there to read our posts and copy them (preferably with some acknowledgement, but do note that plagiarism is not the same as violating copyright).

Next note that for written work that is read by others, there are some rewards that accrue to the author out of recognition for the work. Those rewards can be substantial. For example, the work can be a gateway to television or public speaking engagements, perhaps to a faculty appointment at a major university, as well as to produce other writing under contract. Even for substantial pieces of writing in book length form, for example consider Norman Mailer’s most recent book, I believe these type of recognition rewards are sufficient to generate most if not all the authoring that takes place today. (Perhaps “opportunistic authoring” such as George Tenet’s recent book would not be written under such circumstances.) Since it is clear that the costs of electronic publishing and distribution are quite small, in addition to the authoring the primary costs of producing a substantial piece of writing of this sort are the editing and, perhaps, the marketing. So perhaps the optimal term length is not zero. But it can’t be too long.

Yet for books, I believe the consequence of the distortion created by having a longer term length is not too bad. It’s true that I typically can’t purchase a book in digital form to be printed on my own if I so desire. This is the single biggest distortion at present. But via or other online booksellers, I can get access to a very wide variety of titles quite soon after the book has been released. The paperback version of the book may not be available on first printing, but printing technology has improved sufficiently that hard cover books are typically not too highly priced.

Now consider other items primarily in print – newspapers and magazines. Clearly some minimal term is needed. Part of the value of the information provided is in its timeliness. Substantial cost is put in to gather the information and assure its accuracy (although we know that is done imperfectly). Unlike with the authoring of a single book, this is an ongoing activity and hence the cost is ongoing as well. There needs to be a revenue stream to cover that and some period of copyright is surely necessary.

But this type of content has a different use, as a source of archival information, and it is far less clear that for this use the material needs to be copyrighted. Indeed for the reasons that Lethem gave in his piece in Harper’s Magazine, the archive really belongs to the intellectual commons, so it should be in the public domain. When does the news value end and the archival value begin? I can’t give a good answer to that one, but my sense is that one year of copyright is more than sufficient.

Let’s turn to software. Would there be any harm to Microsoft if at this point the source code for Windows 95 entered the public domain? What about Windows 98? Windows 2000? Obviously Microsoft needs copyright protection for Vista and even still for XP. But 10 years is an awful long time in the software business. Having a monopoly for that period again seems more than sufficient and that’s because the product itself has a limited useful life and then becomes obsolete. So while copyright is necessary here, long term is not.

Now consider music recordings. Think of the Beatles. Back in 1963, we had family friends who went to that first Ed Sullivan Show. If I recall correctly, the dad worked for CBS and somehow got his daughter tickets. I think we were at their house that night when the show aired. Unbelievable, I witnessed history in the making. The Beatles were a phenomenon. They made money hand over fist and did so via the gate from live performance, royalties for their songs airing on the radio, and sales of their records, and quite possibly with other merchandise as well. I don’t know this for certain having never seen the numbers, but I surmise that they could have given away their records for free and likewise not demanded a royalty for radio airing and still made a ton of money just from the performances. In that sense, they didn’t need copyright.

They did benefit from copyright, clearly, and I’m sure their albums still sell. Further, others in the music recording business benefited as well. They benefited handsomely. I think too handsomely. Now imagine that you’re in the music recording business and you want to create another phenomenon so you can again ride the wave. What do you do? What gets created? Think of MTV. Think of Britney Spears. This documentary about the music business, not particularly well received but in part that’s because it is largely about a downer, makes the same point. Economists would describe the behavior as rent seeking. All this production dissipates resources. And in the process it has killed the creativity of music makers who care only about the music, because they can’t enter into this business, the production costs are too much for them.

Recall that copyright was originally about the folks doing the first printing, not about the authors. Let’s focus on them and ask this question. Could they run their business in an entirely different way, lean and mean on the original production, distribute the audio files for free online, track which music gets a lot of download and then market those groups via live performance? Could that approach be economically viable? And now ask, would that approach turn these producers and distributors into fat cats in the event one of their groups became the next phenomenon? Is that the reason we need copyright? This seems to me a good reason to limit copyright term, not extend it.

I would feel much better ethically arguing against the piracy of downloading music illegally if I didn’t feel such a strong sense of hypocrisy from RIAA on the term issue. Last night there was a fight on Pay Per View, Mayweather against De La Hoya. It cost $55. I didn’t buy it. In the next week or two I expect that fight to be on commercial TV for free. I can wait for that. But for music, I’ll have to wait life of the artist plus 70 years for the free download. I don’t get it why that is needed.

It’s much the same for movies, with all the blockbusters, too many that end up bombing at the box office, much the same as why MTV seems like a necessary way to promote music. Let’s admit that film production has a bigger fixed cost than music recording. So on that argument the efficient term should be longer. But how much longer? And as a consequence don’t we see the commercialism drowning out the art too often? Isn’t that more of a problem with film than with music?

There is still a different issue with video. The TV and cable or satellite provide a different gateway into purchasing content. There is both pay per view and subscription film channels, e.g. HBO. These ways of purchasing content are a rental market. (With TiVo there can be some aspect of durability to the purchase, but unless or until that purchase can be burned onto a DVD, the purchase is essentially ephemeral.) In contrast, one can purchase video as a durable good. For example, has an extensive DVD collection. In doing some background checking to write this piece I was pleased to find that some of the more interesting films I saw when I was in College or Graduate school are available through this avenue. Among these are Shock Corridor ($26.99), Children of Paradise ($35.99), and Closely Watched Trains ($26.99).

The rental market via pay per view offers a fairly limited menu of very recent movies. There is no rental market for older films. If there were, it would reduce my demand to see current movies. And, of course, if those older films were in the public domain and freely available for download, my demand would be reduced that much more.

As a consumer, a movie will last two hours more or less and I might view it a second time. I object to paying the equivalent of new release hard cover book prices for that experience. When I read a book, say a 300 page thriller, now I’m probably putting in six to eight hours in the reading and I’m often buying that in paperback. And then my wife can read it or one of my kids. It’s a better deal. The movie viewing better matches the rental market model. But that’s not how they sell it, except for the contemporary films.

Further, they deliberately don’t release films for purchase till they’ve been out in the theaters for a while. They do this as a means to fight Coase’s Conjecture about the Durable Goods Monopolist, who reduces price down to marginal cost, “in the twinkling of an eye.” When the kids were very young we watched a lot of cartoon movies, and the industry started to experiment with films that were created to be delivered for home viewing at the outset. I believe that some of the films in The Land Before Time series were in that category. So they obviously recognize that in some demographics home viewing trumps theater visits as a preferred mode. But for non-cartoon films, they don’t try to make those films available to home viewers as the films come out in the theaters.

Let me wrap up. We live in a highly connected world where due to the Internet individual creators probably don’t need copyright at all to get their ideas out. My own belief is that the big book publishers, music producers, and film studios do need copyright, but not nearly as much as they claim and the current term limits by law can only be rationalized by the monopoly argument, 70 years after the life of the creator is essentially infinite for anyone reading this post; we’ll be dead by then.

The last remaining question is how one should act in light of unreasonable nature of the copyright term. Here are the possibilities – speak out but obey the law, look the other way regarding the violations of others, capitulate in full, treat it is a muddle and mumble about it, or disagree with the analysis I’ve given and think we’ve got a pretty good thing going. I’m doing the first one for me, but I’m still scratching my head about how I feel about the student behavior. That the RIAA in particular is putting pressure on CIOs and Provosts on the illegal file sharing front takes the issue outside of ethics and into limiting liability for the university. That’s not the way to educate our students and that’s really why I’m so bothered by this.

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