File Sharing and the Pony Express

Considerable effort is expended by media corporations to sell the story that “copyright violation is theft”, thus justifying the persecution of file sharers. However, although copyright violation is illegal, it is clearly not theft, and although there are grounds to question the morality of file sharing this issue is not as clear-cut as either side would like to present. But in order to explore the subject of file sharing, I want to begin by telling a story about something completely different.

From April 1860 until October 1861, the only way that messages could be delivered across the United States was by the Pony Express – a network of horseback riders who operated a relay system through the rugged terrain of the Western states, allowing letters to travel from the Atlantic to the Pacific coast in just ten days. It was the first time that a transcontinental messenger system had been operated since the time of the Mongols or the Roman Empire, and the tremendous risks that the riders assumed helped them achieve a legendary status in American mythology. But on 24^th October 1861, the Transcontinental Telegraph – a network of wires carrying messages in Morse code – reached Salt Lake City, Utah. Two days later, the Pony Express announced it was closing down. There was a romance to the Pony Express which charmed many a person, and still does to this day, but when new technology came along, the business model upon which it was built became redundant.

Clayton Christensen coined the term disruptive technology to describe situations where a new technology permits a different business model to transform the nature of competition in a given market. There are many examples, such as the effect of the onset of steam power on the Dutch economy which had blossomed on the back of its abundant windmills, the transformation of the battlefield with the arrival of gunpowder in the West, or more recently the change to print publishing that was brought about by the arrival of desktop publishing. Disruptive technologies are threatening to the market leaders in a particular field because they have built an empire on a particular premise, and are unprepared to face new competition which comes from an unexpected direction.

File sharing – the process of the mass duplication of audio, video and other digital media via point-to-point clients such as those using the popular BitTorrent protocol – is a disruptive technology in the media sector. It represents a vast black library of media (since no money is exchanged for files that are shared, it is not a black market). This library is not exhaustive – it is only easy to acquire that which the internet geeks who operate as renegade librarians are interested in themselves – but for current film, TV and audio media it is certainly faster and arguably more convenient than the alternatives. Yet copying a file from the black library is not theft, since our notion of theft requires that the original owner be permanently denied what was taken. That doesn't happen in file sharing, no matter how many copies are made. It is still illegal – copyright laws are violated – but it is not illegal because it is theft, since it is not strictly theft.

The economic impact of file sharing is a disputed topic: sales of CDs have declined since the arrival of Napster in 1999, but a 2007 paper by Olberholzer-Gee and Strumpf tracked actual downloads on file-sharing networks and concluded its impact on CD sales was “statistically indistinguishable from zero”, adding “while downloads occur on a vast scale, most users are likely individuals who would not have bought the album even in the absence of file sharing.” Yet CD sales have undoubtedly declined. If it's not necessarily internet file sharing that's the culprit, then what is?

It is important to appreciate that while file sharing is a disruptive technology, it is not necessarily the disruptive technology responsible for putting the cat among the pigeons in the media marketplace. It is perhaps not the capacity to share these files freely and easily on the black library that is the cause of the disruption, but rather the advent of digital media and access to vast volumes of storage space. Because in a world where digital files can be reproduced infinitely without loss of quality, and stored by individuals with relative impunity, digital media is no longer in the space of tradable commodities at all.

In order for a particular form of goods to be sold as a commodity, it must be in finite supply. Our very idea of the exchange of goods in the free market depends on the notion of supply and demand – but we've never before had to consider what happens when there is an infinite supply (at negligible cost of distribution) of something that remains in demand. That is precisely the situation we face with digital media – although costs are assumed in the creation of the media, once it has been created it is in infinite supply, and you cannot adequately commoditize something in infinite supply. That doesn't mean you can't monetize it, but any such revenue need to come from approaching the situation from the perspective of providing a service, and not as sale of goods.

To circumvent this problem, media corporations are trying to enforce DRM – digital rights management (although it's opponents prefer digital restrictions management) – in order to artificially maintain the ability to commoditize digital media. Many people (myself included) refuse to tolerate this, and some (myself excluded) have no moral qualms participating in piracy in order to covertly oppose DRM. I cannot sanction this myself (although I sympathise) since this issue isn't going to get resolved without collective action on the part of consumers, and as consumers we should be able to say to the media corporations flatly: we won't accept DRM, especially on conventional audio-visual media which can always be copied no matter how you protect it (because of what is termed the analogue hole).

The telegraph invalidated the business model of the Pony Express, and thus it died. The business model of most of the media corporations is similarly invalidated by the infinite reproducibility of digital media. They must change, or perish. Allowing the media companies to use DRM to cling to the commoditization of digital media would be akin to allowing the Pony Express to have somehow imposed limits on the number of telegrams that could be sent each day to artificially retain its relevance. When the technological conditions change, the marketplace changes – companies that cannot adapt to these changes should not be allowed to manipulate the market, at least in a free market economy: they must either adapt, or die.

But if infinite reproducibility destroys the commoditization of digital media, how will the money to create the digital media be secured? The answer is different according to the kind of media involved.

In the case of music, it is important to remember that the artists that make music were never making much money from record or CD sales – only the corporations (with their large portfolio of artists) were able to do this, although mega-artists like Michael Jackson or Madonna were exceptions. The vast majority of musicians make their money from live performance, and those that strike it big with a particularly popular song make money not from sales of recordings of the track so much as the licensing of that song to advertisers, or TV and film soundtracks. Money is also made from a flat-rate license scheme used in radio broadcasts (where royalties accrue per-play).

The futurist Gerd Leonhard has suggested that a flat-rate license for downloading music would be an effective way forward, stating: “The flat-rate-licensed usage of music on digital networks, be it for streaming or downloading, would quickly generate billions of dollars of revenue that could efficiently be distributed to the creators. These creators are now ill-served by the way their representatives refuse such licenses and deny the use of music more often than allowing it.” He suggests that many media corporations are going to lose interest in music because large companies look for big margins at low costs. That was possible when the sale of CDs (a commodity) was the primary means of distributing music, but digital media disrupts that business model.

Even without a flat-rate license for downloaded music, the black library is only an economic threat to artists who have enjoyed astronomical commercial success – and these will continue to make millions in endorsements and live performances. More obscure artists, who are already dependent upon live performance for their revenue, would be wise to give their albums away for free since anything that can grow their awareness (their brand, in the terms of the modern marketplace) should be seen as positive – many already do so. The cost of lost album sales is negligible when no-one knows who you are, and the potential benefits of growing your brand outstrip the small loss of revenue.

For artists that have already built up a strong brand, it may even be possible to continue to commoditize their music in the form of a boxed consumer product (even though the digital media might be available for free) – the story that “a true fan buys the box” can be a viable marketing tool here, preserving commoditization by selling a collectible item that includes the music but is also a desirable object in its own right. Not to mention the vast sums of money for other merchandise and endorsement deals that such artists will continue to profit from.

In the case of films, these are already being sold to consumers in cinemas as an experience, and hence on a service rather than a commodity business model. As long as consumers enjoy the experience of going out to watch a movie, this marketplace will remain viable. Loss of secondary income may impact the funding available, but since movie budgets have become insane in recent years, and are largely spent to prop up the extravagant lifestyles of the star names who draw people out to the cinema, the quality of films is unlikely to suffer. Meanwhile, independent films would do well to distribute freely in order to grow awareness, especially if a flat-rate license for file sharing becomes accepted. The black library has barely affected box office revenues, which continue to demonstrate record breaking revenues on nearly an annual basis.

In the case of TV, this is already distributed for free on the back of advertising revenue. File sharing doesn't circumvent advertising as a revenue stream, since those that use the black library do so via sites such as the Pirate Bay where they go to acquire the codes required to download digital media – and the Pirate Bay (and all equivalent gateways) generate revenue from advertising. It's not that advertising revenue has been destroyed by file sharing, it has simply moved. By not adapting to the market conditions created by the new technology, media companies are losing revenue by failing to compete.

Dr. David Price, who works in anti-piracy on behalf of content-providers, has stated categorically that most media companies have the wrong attitude to piracy. They should see it not as shrinkage (shop-lifting), but as competition. He sees the success of file sharing not simply as a consequence of the content being free (TV stations already give their content away for free) but because the black library provides material conveniently and rapidly (especially in countries like Australia at the butt-end of media distribution). He claims people flock to piracy because it offers better service, and cautions media corporations that “the best way of stopping piracy is to be the best provider of your content.”

Furthermore, some companies are recognising the value of what is currently considered piracy. Weeds is one of several shows to have intentionally leaked episodes onto the black library in order to gain promotional benefits, and when asked if BitTorrent had helped Heroes build a wider audience, Jesse Alexander (co-producer and writer on the show) responded with a categorical “yes”. Heroes enjoys TV audiences of around 14 million; compare this to the approximately 2.4 million people acquiring the show from the black library: not only a relatively small proportion of total viewers (one in seven), but to a significant degree the renegade librarians are contributing to the promotion of the shows they enjoy on the internet via blogs and so forth.

(I will brush over videogames for brevity, but since there is no analogue hole in this case it follows that as long as they are engineered for specialist equipment they can be sold as commodities, and whenever this is not plausible a service model – via subscription or advertising – is always viable).

Dilbert creator, Scott Adams, responding to this issue, has tried to voice the concerns of the content creator – acknowledging that file sharing is not theft, while suggesting that it is still unpleasant. He uses an analogy of someone borrowing your underpants, then washing and returning them, to suggest that something negative can occur without it being theft. He further suggests people are attempting to defend file sharing in order to lessen their cognitive dissonance. I don't disagree. But those who will lose out as a result of the disruptive technologies at issue here are equally trying to lessen their cognitive dissonance by defending invalidated market practices in the face of an entirely new media paradigm they have strong reasons to despise, but ultimately may have to accept – just as the Pony Express could not prevent the Transcontinental Telegraph from replacing it.

The fact of the matter is, the internet has opened up every kind of media – including print media – to a strange new world. It has invalidated distribution as a market paradigm for media by creating a space of infinite supply and finite demand. The problem, under these new conditions, isn't going to be how to distribute to your customers – this is now the easy part – the problem is how to earn and keep their loyalty (how to grow your brand) and how to get and hold their attention. And as Gerd Leonhard has suggested: “Attention is indeed the new distribution. And real money will be paid for real attention.”

Comments

[GregT]

Okay, that was an excellent post, and well worth breaking my DRM-debate ban in order to post. Thanks heaps for this piece!

[caller#6]

Hi Chris,

Suppose I was a very good counterfeiter. Would my secret printing lab be considered merely "disruptive technology"? Should the government, rather than wasting time arresting me, instead focus on competing with me in arena of printing money? Would I be hurting anybody? Stealing from anybody? Would my defenders step up, arguing that I was stimulating the economy and therefor--ultimately--doing something good? What if my dollars were perfect copies of US dollars? What could possibly go wrong?

predictably,
c#6

[Chris]

Greg: glad you enjoyed it! I certainly don't close any aspect of the debate with this piece, but I think it helps clarify the issue.

Caller #6: Hello again, you do like to be awkward. :) But seriously, what aspect of counterfeiting suggests disruptive technology to you?

If you print your own money, you reduce the value of everyone's money - you steal from everyone, albeit only a tiny amount. If you copy an audio file, you ostensibly deny money to its creators but you don't steal anything in a conventional sense since nothing is lost to anyone else.

I'm not saying it's morally right to copy an audio file without permission, and its certainly not legal right now, but I am saying that deploying DRM to preserve commoditisation in the wake of a technological shift which creates an infinite supply goes far beyond our expectations of what is reasonable economic practice.

---

Well that was all quite tame, all things considering... I imagine the flaming ire is on its way. :)

Cheers!

[wonderwhy-er]

Interesting post. Provides some interesting views I did not think about before. I do agree that laws of real world items do not work for virtual items so I personally think that future of such stuff that can be digitalized will be services with subscription and advertisements like TV is now.

caller#6: Thin here is not about that YOU are a good counterfeiter but about that technology enables 12 years old to be a good counterfeiters. That's how thing's are right now with digital stuff. 12(you can't even sue them) years old and up are using benefits of fact that copying digital media is free and easy and this brings down market of that i used to think that it should not be like that... Unfortunately for them it already is for 20 or so years it just that it slowly becomes cheaper/easier/faster then conservative leaders of the marked and that's something they can't compete with and it seems they can't find their way out of it... Almost.
There is one thing they can do. They need to have full control over hardware/software/distribution media to be able to force their rules and there are some emerging models that do just that... Consoles and devices like iPhone where even tough you bought hardware you don't really have control over. Apple does. Even after you bought it. And that's only way old minded companies can go right now. But I think that that model will not be able to compete with Creative-Commons/Open-source movements in long run anyways as they are cheaper and their quality of content grows faster but they still need to catch up :)

[GregT]

Caller #6 - the value of money is not in the information contained in the bill but rather then contract that it represents. We don't want money because of its aesthetic value, we rather hoard it because the government promises that each unit of currency is theoretically exchangeable for a portion of the government's gold supply, gold being a valuable and genuinely limited commodity.

If you were able to perfectly replicate gold in every way, I would see no particular long-term reason not to do so as you would be providing more of a genuinely valuable commodity to the world. It would, of course, cause economic chaos, until governments shifted their currency backing to a new item of scarcity.

Which is all a good analogy, really. Media publishers need to shift their product model to something of which there is a genuine scarcity.

[GregT]

Off-topic: you need to update your blogroll. Artful Gamer and Double Jumping have closed shop and your link directs to a placeholder site.

[Chris]

Wonderwhy-er: It hadn't occurred to me that younger pirates are immune from prosecution. That does put a wholly different spin on things! :)

GregT: well, let's not forget that governments moved off the gold standard quite a while back. So what currency now represents is merely the promise of the government that your money has real value! This, in fact, contributes to the current "New Great Depression" as moving off the gold standard and onto what is termed 'fiat currency' ("this money is valuable, because we say it is") allows banks to literally invent money as long as the government permits them to do so.

We live, as ever, in interesting times! :)

And thanks for letting me know about the dead blogs! Since I subscribe over RSS, I often don't notice that a blog has gone under. :(

I'll update my lists.

Alright, that's all from me for about a week. *waves*

[GregT]

Huh. I was actually unaware that the gold standard was not a current thing. But having now done the necessary reading, I don't think it makes a difference to my point. Under fiat, currency is still a token system rather than a commodity in itself. Rather than being exchangeable for gold, currency is a token redeemable for the goods and services of others of your nation, as declared by government enactment. It's still a symbol of societal contract, so the production of more of it is not the replication of a valuable commodity, but rather an attempt to deceive the community into believing it has awarded you a quota of the total societal value which it has not.

[caller#6]

Chris: we agree that counterfeiting dilutes the value of currency (perhaps infinitesimally in my example). Doesn't unauthorized digital reproduction of copyrighted information, similarly, dilute the value of that information? That was the analogy I was going for.

Your Pony Express story is a good example of disruptive technology. Digital distribution is as well. But file sharing is, to my way of thinking, not a disruptive technology but rather a specific application of digital distribution, just as counterfeiting is a specific example of printing.

But more broadly, I do think you're right in saying that it's time to address the issue pragmatically.

With that in mind, do you dislike DRM because it's cumbersome? Or do you dislike it in principle? (Or both?) Do you feel that it differs in principle from a proprietary gaming platform?

GregT: I agree. Scarcity, most often artificial scarcity, is a key component of an "information economy". And maybe the gold standard deserves a post of its own.

awkwardly (both socially and fiscally),
c#6

[wonderwhy-er]

Chris: Presumably that depends on country. Here it is 14 years when you can start suing someone for digital crimes and 18 for real world crimes. Before that you can try to sue those who takes responsibility for child but that usually does not work + phenomena is so widely spread that doing so is just ridiculous.

As for for DRM I find it too restrictive sometimes... As if I did not bought it but borrowed it... It's more of what I can do with things I bought. I clearly can do less with DRM protect stuff which makes me feel that I do not own it even tough I bought it... May be that's wrong but in the end I am not buying DRM protected stuff as it carries this bad taste for me...

There is also another thing that bothers me with all that intellectual property... I am not really shore that our current copyright laws are philosophically right and not tough/installed to us by our culture... Say in discoveries of stars or science people only have right to name what they discovered and be marked in history as first ones to discover it... How much difference there actually is in writing music from discovering some unique music pattern? How can that person own this pattern even tough it exited before undiscovered? Hard to say I can't for example. From one point that man did work but from other point what right he has to restrict other from using it?

Also to add up to above paragraph what about emerging ways of making music trough programs that generate it. Watched once an discussion on generated stuff and one of persons participating was ambient music composer. Well one type of albums he seels are albums with generated music that contains like 30K hours of unique music that sounds good. I bet he have not heard it all him self :) So how much right he has on what he created that way? How much of possible music landscape he had conquered this way? How much is there left?

So my vision here is that future of digital/intellectual content is in way of services. Like with television where at the moment of broadcast potentially every one gets they hands on their product... In same way games/music/etc sites/services should work. Like imagine a site of game company that releases first game level for free and then says "Hey for us to release second level we need say 10k user base that will pay us 5$ per month so that we release level per month." That's how I see it... I may be wrong but existing system clearly does not work as there is no ways of restricting digital information distribution without loosing our own rights... It is aether lose our own right to backup copyright or finding new ways of doing things. And I am for the last as enforcement of those rules it too big of a problem both for creators and consumers.

[dstt]

Why did you brush over video games? People pirate them just as often as they pirate music. They pirate them despite being for specialized hardware too. Don't underestimate emulators and mods just because it isn't as bad as vanilla PC piracy. The DS is a pretty egregious example.

Anyway, I feel like you've avoided breaking new ground on the subject. You slipped in some thoughts that (I think?) you feel filesharing is immoral. You also don't touch on how, if embraced, filesharing would made many kinds of software extinct and people would miss them (while we don't miss the Pony Express)

[Behrooz 'Bezman' Shahriari]

dstt: Why do you assume no-one else misses the Pony Express? I love the romantic notion of the mail being carried by young riders and am slightly wistful that I'll never see such a thing.

Surely it's a similar case for boxed software? Why would it be missed any more?

As chris implies at one point, boxes can sell on the strength of their physical attributes - whether packaging design or whatever. If folk were to truly miss them, then there will still be a market as long as they're offered for sale. Though I can legally purchase some albums for cheaper via digital methods (and no DRM) I still sometimes choose to buy physical copies.

[dstt]

The Pony Express was more or less replaced; people still got long distance communication. I'm only saying that if everyone embraced filesharing then would drive certain products* to disappear and that would be a difference. Filesharing doesn't replace the product if no one makes it. I don't see a contradiction in this thought experiment where everyone is both willing to pirate and willing to pay for the product.

*We'd have to assume this product can't be sold as a service or given away for an ulterior motive.

I suppose that doesn't answer the point about romantic notions. The enactment of copyright aims to encourage creative works. There aren't similiar measures to encourage a healthy supply of "romantic notions about ponies". There is a difference in how society would miss the two.

[Chris]

More thoughtful discussion but no explosive outbursts of horror - perhaps I did something wrong in my wording this this? :)

caller #6: "Doesn't unauthorized digital reproduction of copyrighted information, similarly, dilute the value of that information? That was the analogy I was going for."

I see what you're getting at now, and this is an interesting parallel. As long as one begins by looking at the existing copyright law, I think your implication is valid, but what all this really throws up is how wildly inadequate the current copyright laws are for dealing with a world of infinite reproduction.

How these laws might change when large corporations have greater influence over the law than individuals, is harder to assess...

"With that in mind, do you dislike DRM because it's cumbersome? Or do you dislike it in principle? (Or both?) Do you feel that it differs in principle from a proprietary gaming platform?"

I detest DRM for similar reasons to wonderwhy-er, so let me deal with this point below.

wonderwhy-er: where is 'here' for you, I am uncertain?

"As for for DRM I find it too restrictive sometimes... As if I did not bought it but borrowed it... It's more of what I can do with things I bought. I clearly can do less with DRM protect stuff which makes me feel that I do not own it even tough I bought it..."

I share your feeling here. There are plenty of services in which one pays a fixed fee and has access to a vast library of music on a service-model, and that's great, but when I *buy* something I expect to *own* it. That includes for me the capacity to archive it indefinitely, and to loan it to people. When DRM denies me these rights - which I previously possessed with music, films etc. - it crosses a line.

The offence for me is that we have moved to a technology in which reproduction is *easier*, so why should I support restrictions that instead of giving me the benefits of the new technology, give me reduced rights - even fewer rights than I had before the new technology! I find this outrageous, and will not co-operate with it.

Regarding your thoughts on intellectual property, I find many things offensive here as well - such as the idea of patenting a gene. Monstrous.

And like you, I think service models will emerge as more and more common once we start accepting the new technology instead of hamstringing it for the commercial benefit of the media corporations. In the meantime, they can enjoy the haemorrhaging of profits they richly deserve for taking such a narrow minded stance on the subject. >:)

dstt: "Why did you brush over video games? People pirate them just as often as they pirate music. They pirate them despite being for specialized hardware too. Don't underestimate emulators and mods just because it isn't as bad as vanilla PC piracy. The DS is a pretty egregious example."

Oh I agree, but that's precisely why I didn't want to touch upon it here. The piece had already gone on for as long as I wanted it to, and to begin discussing games would have been to add too much to its length - I preferred to skip over it for now.

The point I was trying to make was that the situation for music and video is untenable and must change - in the case of games, this is not the case. Yes, you can modchip your console and pirate games, but this is very specialist piracy... most people are not in a position to do this. That's a key distinction between videogame piracy and music piracy in my opinion, and the former is not as widespread as the latter in my estimation.

I support modchips to break regionalisation (why should a consumer in a global market be penalised because they happen to live outside of the US or Europe?), but I don't support modchips for piracy.

"You slipped in some thoughts that (I think?) you feel filesharing is immoral."

It's a moral grey area, to be sure, there's no way to render it definitively immoral. But for me, I am more than happy to pay for the kind of service available via downloading TV - I wish the media suppliers would sort their act out and allow me to do so. In the interim, they deserve to lose money for failing to adapt to the new technology.

And like Bezman, I think you underestimate the romance of the pony express. It beats telegraph poles any day of the week. :)

I'm not sure about "certain products disappearing", either - what kind of product could not be delivered on a service, microtransaction, advertising or sponsorship model? I struggle to think of something that could not be "saved" from extinction with a little ingenuity...

Thanks for the interesting commentary everyone!