I demonstrated this physicality to a friend by showing them a pad of 580 pages, a bottle of ink, two pieces of cardboard, and some slightly heavy paper stock. All totaled up they represented about $8.30 worth of material. They had physicality and they clearly had a production cost, we agreed they were "worth" $8.30. Then I pulled out the same material except that the ink had been spread about on the paper such that it told the story of Harry Potter's adventures during one of his years at Hogwarts. Now it was valued at $34.99. What changed? It had information on the pages now that it didn't have before, and that information has some value.
I've spent quite a bit of time trying to understand the economics of information, what gives it value, how is that value captured, and how is that value lost. I can tell you unequivocally that digital goods should no more be free than automobiles, and for the same reason. It takes an action to create useful or desirable information, and that effort is an economic action which we reward by sending capital toward it. When people get stuck in the mindset that the 'bits are free' they for get that the order of the bits is not free. It is that ordering that has the value, not the bits themselves. Most people agree that the value of a DVD full of zeros is different than the value of a DVD with a movie on it. They won't agree on what what the value is, but I've yet to find people who don't think there is at least some value[1].
Digital goods should not be "free" and appropriating them without economic exchange is theft, but how 'not free' they should be is an interesting discussion.
[1] For the pedantics, yes some movies could be zeros.
> Digital goods should not be "free" and appropriating them without economic exchange is theft
This feels like a petitio principii. Legally it is incorrect, and as an argument it is unsophisticated nearly to the point of being a slight on the intellectual abilities of our fellow commentators here. I'd like to think that we all here are fairly intelligent and well-informed, and I feel that it is incumbent upon ourselves to present cogent, well-reasoned arguments, which do not trivialize the opposing side, but which are well-supported with appropriate citations. I believe that you have a valid position and that the discussion is one worth having. I read your comments here fairly often and have never yet found anything in them which would subtract the least measure of my respect, but I do think you do yourself and your position a great deal of harm by arguing in this manner.
[0] "The Public Domain: Enclosing the Commons of the Mind" http://thepublicdomain.org/thepublicdomain1.pdf
"However, it is a fundamental economic principle that the cost of a good will approach the marginal cost of production."
This is fundamental to the economics of goods but it clearly doesn't hold for information. When I started researching this topic in 1995 it was exactly because I was stuck in that same discontinuity of understanding. Why were people paying for a CD that had a copy of an operating system they could download for free? A goods economist would, like you state, observe that the supply of such CD's was essentially infinite or at least very high, and the marginal cost of producing one very very low, so how could they maintain a market price that was probably 20x their marginal production cost? That price has a component that is clearly not described by classic economics, what was it? In that same store the cost of blank CDRs was pummelled relentlessly by the reduction in marginal production cost. From over $10/CDR disk when things started down to about $0.43/CDR. Why are they pummeled into the ground and not the Linux Distro of the week CDRs?
I started pulling on that thread a long time ago and haven't stopped. Starting with the question, "What gives information value?" Using what I've learned over the years it has helped me understand and analyze things like what does Google sell really? or Why do non-DRMed artistic products make more money than DRMed ones? Or why did CD sales fall faster after Napster shut down? Can you price awareness? Why did "Its a wonderful Life" enjoy greater success after its Copyright lapsed? Etc.
Right, it is clearly true that pure information has no marginal cost of production. This does not contradict anything I have said. If you think it does, I am afraid that the fault is with your own understanding.
>>> Realistically, digital goods should be "free."
> I'm afraid to have to say that your argument is tangential and somewhat misleading.
???
Fundamental principles of economics dictate that this situation will not happen naturally. The author is not needed to create copies, and therefore prior to the invention of copyright, no one had any conception that he should be compensated for each copy. It's not like he labored to make the copy himself. The guy turning the handle on the press sure isn't going to be easily persuaded that the author deserves a share of the fruits of that labor. On the other hand, we as humans do really like good books, plays, music, etc, and it is considered fair to most that if someone makes a really popular work, that he get some sort of additional compensation for that. Before the wide adoption of copyright, and even through to the end of the 19th century, copyright violation was common enough that "authorized editions" were still common. Gilbert and Sullivan's British copyright on their works was not respected in the United States. American theater companies copied G&S's work almost as soon as it was performed, but people still preferred going to authorized or licensed performances, at least if they had the option, so G&S (well, really Carte) did pretty well from licensing. I digress somewhat, but I would like to note that this is actually an argument for copyright, especially as the least-market-disturbing option. The right to officially monetize some creative work is sometimes valuable enough in and of itself for there to be a market for it, just not most of the time, and there wasn't any recourse if anyone didn't want to work out a licensing deal. This worked out pretty well because copying and distributing physical media was fairly easy to detect and punish, even if the idea of owning a particular idea was understood by most to be fairly absurd.
The other fundamental issue with copyright in the digital age is that the actual marginal cost of making a copy of Harry Potter is no longer that $8.30 in paper and ink, it's a number so close to zero as to be difficult to establish. Trying to argue for a digital copyright is as futile as arguing with the tide. Whether you or I like it or not, we are effectively in a post-copyright world, and nothing will bring the old world back -- it doesn't cost money to distribute media, so we can't give any part of those profits back to the artist. We need new business models, and as it happens, and as this article discusses, Netflix seems to be stepping up to the plate here in a big way. If you would like to actually articulate a position I am sure I would be interested in further debate rather than just having the opportunity to repeat myself in slightly different words.
It improves readability.
The limited-supply good is the copyright license, not the information. The natural value of the digital information is zero, and it is still possible to sell value added services such as printing and binding for a sufficiently popular work.
The real question is for how long should the copyright privilege--and its arbitrarily set licensing costs--be extended?
(A DVD full of ones might be worth more than a movie DVD, and is definitely worth more than a DVD full of zeroes, if it is actually a blank writable disc. The zeroed-out disc might still be of some use as a diffraction grating or drink coaster.)
I see it rather differently, in part because I think this statement conflates two things. One is information value and the other is how we have tried to stuff information value into goods economy ideas. Perhaps an example will help clarify my understanding for you.
This example comes from a friend of mine at Facebook who was getting his MBA from Berkeley at the time;
Imagine you have a soda machine, it is sitting there with a selection of ice cold beverages. Now anyone who has traveled around knows that the "price" for a single beverage from a soda vending machine varies, often by a lot, from a low value when it is in a company cafeteria to a high value when it sits in the floor vending nook of a high priced hotel. But its the same soda. Our imaginary machine is different. It has a variable price right in the machine! If you give it $2.00 it will immediately dispense an ice cold soda, if you give it $1.00 it will give you a ticket that will dispense your selection 60 minutes from now, and if you pay it $0.50 it will give you a ticket that will dispense your selection two hours from now. The purpose of the machine is to capture as much value for the soda as possible, from the "I don't care what it costs, give me a soda" crowd, to the "Ok that is the same as I would pay for it in a grocery store" crowd. All from the same machine.
Now you're sitting there looking at the machine and counting out $2.00 when someone walks up to you and asks what you're going to buy, they offer to sell you their ticket, which they bought nearly two hours ago, for that soda which is going to drop in a few minutes for $1.50.
Think about that transaction for a minute. What did you buy? Did you buy a soda? Or did you buy the information that a soda would drop in a few minutes? There is no copyright here, no patent, there is instead two of the fundamental ways that information gains value, it is timely and rare. Timely, in that you want a soda now and this person knows when that soda will be available, and rare in that there isn't really any other way to get that information, only the person who bought the ticket (and presumably some timer inside the machine) has it. It was always a $0.50 can of soda, but that extra $1.00 value came from information about its availability which you bought from this stranger.
There is an interesting experiment you can run which shows this effect pretty clearly, in the experiment you have three operators and a number of test subjects. Operator #1 is offering to buy the information about where a queen is positioned on chessboard in a building several hundred yards away. You get a ticket for the information that is wanted, walk over the building, show it to Operator #2 who is standing by the chess board, they look at your ticket and move the queen to the place on the board, you return to operator #1 and collect your fee. Now you have operator #3 stand somewhere in the path between operator #1 and operator #2, they offer to sell you the information about the position of the queen for 10%, 25%, 50%, or 75% of the fee value.
You can use information economics to understand the natural value of information (vs the imposed value) and when information is "intrinsically" valuable or merely "temporally" valuable, and when you can create value out of collections of "free" information.
The takeaway though is that it is the information does have a value (again if it did not then people wouldn't miss it if they didn't have access to it) but individual assessments of value differ (why will some people subscribe to the WSJ and others only read it by going to the library and reading it for 'free'[1]).
And as a PostScript I specifically picked a DVD full of zeros because as you point out a DVD full of 1's is a blank DVD that can be programmed and a DVD full of random bits is an entropy source which can be used to improve the strength of one's cryptography, so really only a DVD full of zeros has the least value.
[1] Travelling to the library has its own opportunity costs and costs of execution (getting there, meeting time schedules, keeping a library card in good standing, Etc.)
That parasitic vending machine has another parasitic vending machine next to it, which has an ever better prediction model, such that it buys from the other two machines only when it knows that the second one hasn't bought enough to meet future instant demand. For instance, perhaps it knows the schedule for a nearby convention, when the other parasite only knows average daily purchase volume. So 2 hours from the end of the headline event, the third machine puts in a big order from the first, and then two hours before the end of the expected surge, buys out the second machine so that it can't undercut using its available stock. It then sells out at a higher price and waits for the next opportunity.
So the only time anyone ever sells a drink for $2 is when an unexpected busload of thirsty tourists drops by and buys out the entire stock of cheap, instant beverages.
In your example, you have also forced my hand. What happens if I instead buy a 2 hour ticket, right in front of the guy, and ask what his price would now be to trade my ticket for his?
A couple of interesting (and non hypothetical!) things to ponder. What is the value that motivates people to buy DVDs that are a bootable install and/or live image of a free OS for $9.99 at Fry's? Similarly, what is the purchase calculus that someone does when they buy a paperback book in an airport bookstore which is a book they already own and have a perfectly readable copy at home?
We don't have Fry's here, but depending on your 'net connection it can be cheaper / more time effective to buy a physical version instead of a download. See also physical console games.
Because you can't do this yourself. And it's not about being technically incapable, it's about you know knowing what arbitrary state to assemble them into. It's not really arbitrary. Each assemblage has purpose.
Especially with creative works, there has always been two sides to the cost of production:
1. The cost of making the physical good itself (evaporating with digital goods) 2. The cost of remunerating the creator of the work.
The second cost still exists. You pay people to reconfigure the bits on your hard drive to represent a TV show because you can't think of it all yourself. You pay others to reconfigure the bits on your hard drive to represent a useful program because you don't know how to assemble them in such a manner yourself.
I'm very much against companies that are price-gouging and trying to maintain artificially high prices based on the obsolete first cost. But people still deserve compensation for the work they do, even is the output of that work is purely digital. Otherwise, what is the incentive for them to create anything?
I'm not entirely convinced that indirectly killing off art for profit as a market would be an even mostly bad thing. Those that remain would be those that do the work they love because they love the work, not because they were expecting a payoff of some kind.
For a direct comparison, examine the entire open source software ecosystem.
Yeah, until they can no longer afford the rent and grocery bill. Then they give up their passion in order to survive. Or they spiral out of control because they can't cope with giving up the work they love and because people are withholding one of the most fundamental and powerful forms of approval and validation: remuneration.
> examine the entire open source software ecosystem.
And examine how often a well-loved technology stagnates when it's corporate benefactors fold (because they can't pay the bills) or de-prioritize the OSS projects (often because they can't monetize effectively).
At the end of the day, creators need food, shelter, etc. The most historically reliable way to provide that is to pay them for their work.
Arguably, software developers just rearrange bits into some arbitrary state. So they wouldn't be paid, either?
It doesn't. But "you need to get paid" != "I need to pay you for the copy of your work". It's only a possible implication. One that we accept in physical world, but that doesn't work well for digital one - hence my point about finding some other way in which you get your money for writing, without me having to explicitly pay for a copy of your e-book.
The thing is, that in order to enforce the requirement that people should pay per copy, we're lobotomizing the medium. In meatspace, making a duplicate of an object requires work and resources. In digital space, a copy is essentially free (electricity expenditure aside). It's a feature, not a bug. And to restrict it, you need to put in place a lot of legislation and user-hostile technologies that track everyone and make one's life miserable - not to mention destroying the concept of ownership as a collateral damage.
Yes, we can keep the pay-for-copy, copyright-everything model. We can try to enforce the rules of physical world in the digital one. But is it worth the damage it's doing to computing? I believe it isn't, and that's why I think we need to find other ways to pay the creators for the work they do.
The physical book feels like it's worth something. The digital copy doesn't. People have a moral intuition that they should pay you in the first place, and that they should not in the second, and legality is largely just the formalisation of our moral intuitions.
If this were the whole picture, it would be legal for anyone to take the text of Harry Potter and print their own copies of it. Or all books with the same physical "feel" would cost the same.
In the US, its constitution motivates copyright and patent law pretty clearly "[t]o promote the progress of science and useful arts." At least in that sense the laws are to ensure that people have some incentive to actually create new stuff and ideas. Furthermore, people inherently attribute value to the information within or else you would not see price differences in content with the same physical feel.
We largely don't see such differences though. We would assume Harry Potter is what, 3x as good as competing knock-offs? But it's always been priced comparably to other books in the same form factor, certainly not 3x as much.
This does not change the fact that your cat needs to eat.
Perhaps there's another way for you to get food for your cat, than taxing my friend for reading your book?
Assume that the funds required were taken as a tax (a cultural development tax, say), or, if the over-patron were a corporation, from the subscriptions of all users.
The allocation of funds for the exercise, being too easy to open for corruption, would instead be made democratic. That is to say, if you use or enjoy a work, you would indicate as such in a central repository, and some allocation of your input into the central fund would be routed to the creators. This is in effect similar to how Patreon works today.
On the creator's side, the benefits to this are a much more likely source of income; since the fund is state- or corporation-backed, they are much more likely to receive an amount of money if they produce enjoyable works. To raise initial funds to shoot a movie, we can imagine a Kick-starter like system, or the current model of loans and pitches to large individual investors. One definite benefit is that if people have already "spent" the money in this fund, they are much more likely to actually indicate their preferences and allocate money to artists or tool-makers that they benefit from.
There is, of course, the possibility that creators will resort to the normal populism and cookie-cutter approach to content creation that already chokes YouTube and the AAA media industry, but to be honest I don't think that's a problem that can be solved if people continue to pay attention to what they will. Given that that freedom is more important (IMO) than the integrity of art, it shall be so.
The obvious question, of course, becomes "What does the state, and ultimately the people who foot this bill, gain out of this arrangement?" Several things (the profit motive for a corporation doing this is obvious; I will cease discussing them any further); - All media entering the public domain as it's created means that software and culture becomes much more open and universal. Everyone has access to the same media and tools, and can iterate on all of them together. - Any state doing this gets a massive advantage in the culture war. In essence, they have subsidized the production and dissemination of their national values and ideals internationally. This has a tendency for positive knock-on effects in other economic areas, as well. - The death (or at least severe decline) of the advertisement industry. This seems a bit harsh, but these companies are frictional to the economy. I cannot stand ads and would love to see that propaganda machine shut down. - Creation of more niche content. For all its faults, Kickstarter has given small-to-medium sized creatives much greater chances in finding success, and especially when appealing to market segments that tend to be ignored by large content producers. This is an extension of that effect.
There are, of course, downsides. The further spread of echo chambers, the mere fact that this is an additional cost to citizens who may not even want it, the centralization of control of media creation to a state-level entity, possible privacy issues, etc. However, I see those as inescapable trends anyway, and it would be nice to get something out of it for once.
The primary issue I see here is the indirectness between creator/publisher and consumer for what their receiving. Similar to cable: one reason people are cord-cutting is that they'd like to pay for what they want, not the whole bundle.
The Kickstarter model addresses this somewhat, but it doesn't account for long-term continued revenues for the creators for ongoing projects. Also, there have been significant defaults on Kickstarter-type projects, and people (including myself) are becoming increasingly wary that they'll see the fruits of what they paid for.
As for the death of the advertisement industry, they do significantly foot contribute to the income for a lot of media projects, things people aren't willing to pay for directly. While people who pay for subscriptions may think that covers a lot of publishing cost for things like newspapers, it in fact covers only a small percentage of their total revenue. Compare with something like The Information: no ad revenue, small staff, relatively low output, over $300 per year for a subscription.
And, yeah, the state-level entity (which you mention more often than a private one) is going to be hugely unpopular, at least in the US. Look at public broadcasting (NPR, PBS). A small fraction of the budget, still relies heavily on supporter drives, and constantly under the knife. Not to mention the fear that anything involved with the state is propaganda.
A really tough sell, in my opinion.
There's the rub - all of that effort and money creating products with no real monetary value.
I'm not suggesting any particular model here, I like money as much as the next person, but I also believe the trend to see the price of digital media converge toward zero is valid. I don't know what the answer to that is, other than somehow convince people to pay for something they rationally shouldn't.
Temporality is a nonsense argument.
Your sandwich shop worker served you and 80 other customers last Tuesday. I'm the boss, and it's time for me to cut the checks. Wait—what am I paying for here? Today's Friday, and all those sandwiches are already out the door.
In that case, you're paying for the time your employees could have spent elsewhere - and you're likely not paying more if your employees make more sandwiches faster. Also, every sandwich is unique, and takes physical effort and resources to make - if sandwiches could be copied as easily as software, chances are you would fire all but one employee and pay that one as little as you legally could, and still charge the same price, but would that really be fair?
The problem with the economy around digital media is justifying what, exactly, the consumer is meant to be paying for.
The contractual debt you incurred when the work happened. Or, in terms of expected value received from paying, you are paying to avoid the legal consequences of not paying that debt.
Copyrights and branding piracy as theft are ways of trying to artificially control the free market here. But they're so obviously "unnatural" in the digital space, that it makes sense to think about ways of making it so that the original creator gets paid, while copying remains free.
The other is along the lines of what you wrote here, which I think sums it nicely:
we need to rethink the path that currently leads from "X created it, and deserves compensation" to "Y receives a copy and should pay for it".
What I'd like to hear is more about potential solutions as opposed to descriptions.
I know it changed for me too, and I think it's mostly because of having more disposable income nowadays than in the past. As a teenager, there was no way I could afford movies or video games. Now, my natural first instinct for media is buying / subscribing on Amazon, Netflix and Steam.
> What I'd like to hear is more about potential solutions as opposed to descriptions.
I've been thinking about one, and it turns out to be exactly what 'endominus described here:
Consider your ISP takes every packet that is destined for your router at your house and sorted those packets so that all the zero bits were at the beginning of the packets followed by all the one bits. They deliver this sorted data to you perfectly reliably and at great speed. You are receiving exactly the number of zeros and ones you asked for, but simply in a different order. Would you pay for this service? If not then you obviously see the value in the "arbitrary state" of data.
Because someone else took the time to create it, you didn't, and other people have families to feed. If you don't want to pay what someone's asking, write the app/game/product yourself.
If you want digital goods at all you'll learn to pay real money for them. My house & food require real money to buy, and I can either think those digital goods into existence for you to pay real money for, or I can grow that food and build that house while you don't get those digital goods at all.
How about you enumerate all the digital content you've used over the last week (books, music, movies, games, software, tools, etc) and identify what percentage of them were created with zero expectation of financial gain? Yes, some people make digital content as a hobby and produce laudable results, but most of the time if you want quality you're going to have to pay for it because "zero distribution cost" doesn't put food on the table.
The comment I was replying to asked for one example and asked specifically about persistence, that's why I gave the example of something I remembered reading 7 years ago (the work itself is 8 or so years older than that IIRC).
> How about you enumerate all the digital content you've used over the last week (books, music, movies, games, software, tools, etc) and identify what percentage of them were created with zero expectation of financial gain? Yes, some people make digital content as a hobby and produce laudable results, but most of the time if you want quality you're going to have to pay for it because "zero distribution cost" doesn't put food on the table.
That's the wrong percentage to ask about - a better question is how much content would have to disappear before it started to noticeably impact my life. 99%? 99.9%? 99.99%? That would still leave many lifetimes' worth of high-quality content. Are you so sure those hobbyists couldn't sustain the 0.01% or less that people need?
Then we were taught "classical" Adam Smith macroeconomics, a tiny dash of Mercantilist economics, and then "modern" Keynesian economics. No mention of any of the following was ever made:
Islamic economics
Hamiltonian economics
Marxism
Georgism
Chicago school (Friedman et al.)
Austrian school (von Mises et al.)
Anarchist school (Proudhon, Bakunin, et al.)
game theory
The Hellish mythical realms of Niflhel, Zamhareer, and Dante's Lake Cocytus are always quite frozen.
You can become quite learned about all the various mythological Hells when you think too much about how those who are guilty of gross economic crimes ought to be punished.
J.P. Sartre got it right: "L'Enfer, c'est les autres." ("Hell is the other [people].")
A chair is made of wood. Should the chair cost what wood costs?
That digital media is considered to have any monetary value at all makes less and less sense the more one thinks about it. It's possible the world should have thought twice about moving everything online and making everything digital, but it's too late now, and we're stuck with concocting elaborate fictions around digital media in order to keep people fed and keep the economies of the world functioning.