Tuesday, March 22, 2005

IP Judo

Normally, I agree with most of what's written in TechCentralStation, but this article, urging the Bush administration to get tough on IP, strikes me as getting it completely wrong. The author, Duane Freese, takes aim at both online music 'theft' and foreign piracy of pharmaceuticals and software. Early in the article, Mr. Freese notes that IP constitues $600 billion of the U.S. economy; later, he rages against losses due to piracy of $13.4 billion, worldwide. The latter figure omits the supposed losses of the pharmaceutical industry, so lets double the figure. That's still only $26.8 billion ... considerable, to be sure, but negligible compared to the size of the industry as a whole.

Lets start with filesharing. Mr. Freese argues, correctly, that it's pointless trying to take out individual file-sharers. Instead, he recommends focusing on commerical networks (one would assume he means Sharman Networks' Kaazaa.) Great idea ... sue the companies that actually make revenue through advertising, with the result that freeware such as Ares and Gnutella will step in to fill the niche. The recording industry could probably get money out of Sharman, but there's no money at all in the other software. Filesharing, frankly, is here to stay. No one's going to buy an iPod with 40 gigs of storage, and then shell out $10,000 to fill it ... and storage is only getting cheaper. Musicians would do well to look upon filesharing as free marketing, and make their money at live shows (which is where most of their money is made, anyways.) A similar argument applies to movies: sure, people might download them, but actually going to the theatre with friends is a social experience, difficult to replicate in front of the warm glow of your computer monitor.

So we can dispense with the argument that filesharing constitutes theft. What about the foreign piracy of pharmaceuticals and software?

This is trickier. Mr. Freese argues, essentially, for trade sanctions against countries that refuse to respect IP. "You don't want to pay full price for PhotoShop? Fine, we're not going to buy your bananas." This strikes me as, frankly, silly: American consumers will get to pay more for bananas, while Brazilian software companies will carry right on pirating PhotoShop (especially now that the banana growers aren't making as much money.) Even assuming the government caves to U.S. pressure, many of them (particularly Brazil) are likely to encourage the development of open source software, for the simple reason that they cannot afford to pay American prices for commercial software. As for pharmaceuticals, well, that's what black markets are for. If a fly-by-night company will sell you AIDS pills for $10 a bottle, and GlaxoSmithKline wants $500, a poverty-stricken third worlder is going to go with the fly-by-night, issues of quality control be damned.

Trade wars aren't the answer, here. The answer, I would argue, is more free trade. Get involved in a trade war, and those very foreign markets the IP companies want opened will just close down, exactly what the pirates want. Push for free trade, and the locals will, gradually, get richer. They'll be more willing to spend money to get brand-name drugs with guaranteed high quality, more willing to shell out for a legitimate, high-quality DVD in place of a pirated copy-of-a-copy-of-a-copy with scratchy sound and a grainy picture.

CEOs love to moan about how their corporations are getting screwed over by those who refuse to respect intellectual property. In truth, many of them are weeping all the way to the bank: piracy isn't bankrupting corporations everywhere you look, it's just shaving a little off of their profit margins. The recording industry, for instance, is not in the red; it's profits just aren't quite as high as they were a few years ago. It's not possible to give a meaningul estimate of how much they're actually losing, as there's no 1:1 correspondance between, say, a song downloaded and a song bought. If I download a song, does that mean I would have bought it if the downloading option hadn't been available? Maybe. But nine times out of ten, I wouldn't have. Similarly, if an African villager whose wordly possessions consist of one scrawny goat and a patch of hardscrabble land hadn't been able to buy his three-month supply of AIDS meds for $10, it doesn't mean that he would have shrugged his shoulders and paid $500 instead. More likely, he just would have died.

If corporations are having a hard time selling their IP products, they might want to consider that, just maybe, they're charging too much. They also might want to reconsider just what it is, exactly, that they're selling: it's not, as so many of them think, the information. Rather, it's the quality of that information, whether in terms of clarity (high quality DVD vs. shitty pirated DVD), experience (going to a concert with friends vs. listening to the artist on your iPod), convenience (having a song download quickly, with a minimum of time spent trying to find it, and the confidence that it will actually be the whole song vs. the user-beware P2P environment) or quality (a bottle of AIDS meds guaranteed to do what the bottle says vs. a bottle that might do nothing or even make you sicker.) Users will pay a premium for all these services. Not all users, maybe, but some and, I think, enough that the corporations - and the artists, scientists, engineers, and computer programmers they represent - will be able to turn a profit and maybe even make a living from what it is they do.


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