Ideas: Worth Less, Worthless, or Worth Even More?

When the US was a young nation, it was greedy to learn and to grow. A good example is Benjamin Franklin a famous polymath who experimented with electricity amongst other things. Benjamin Franklin was an innovator, but he also engaged in piracy. Franklin, like others, republished the works of 18th century British authors without giving them any reward in exchange for copying their words. As early as 1808, the poet William Wordsworth complained about exploitation and argued for copyright to be extended. The most popular novelist of the Victorian era, Charles Dickens, lobbied Congress during his North American speaking tours, protesting that the copyright of British authors should be recognized in the US. His pleas fell on deaf ears. America needed the wealth of new ideas and lacked libraries. For Americans to benefit from education and entertainment, so the argument went, necessitated cutting costs, and that meant not rewarding the British authors who should be satisfied with the rewards received elsewhere. And was not the success of Dickens’ tours a real demonstration that piracy helped authors, rather than hindering them? The argument went on to assert that Dickens benefited most from the enhancement of his reputation gained by the wide circulation of his work. Whether Dickens thought so or not, the Americans had decided this was worth more than profiting from the sale of fewer books bearing his name. Does that sound familiar? It should, because we hear the same debate today. The difference is that the tables have turned and now the US, like the other countries that have hoarded intellectual wealth, is concerned that its valuable copyrights are exploited by the greedy, growing, countries of the developing world.

Whilst the struggle for copyright is sometimes seen as a battle between nations, it is also a battle of will within national borders. The emergence of a political movement in European countries, the Pirate Party movement, tells us something about the strength of feeling across an increasingly polarized debate. Businesses pursue stringent fines for P2P filesharers. Governments enforce stricter laws to protect copyright. Citizens respond by forming new political parties and canvassing for votes. There is a Pirate Party in the US too, though the nature of American democracy makes it very unlikely they will break through and raise the profile of copyright reform. The frontline of the US copyright debate is the courtroom, not the ballot box. In contrast, the very existence of electoral alternatives has enabled European parties to secure valuable attention in mainstream media. In only the first month since being launched, the Pirate Party UK has secured room for the debate about copyright reform in every quality British newspaper, on television and radio, and of course all over the internet. All of this is encouraging for a party that wants people to freely exchange their thoughts, and is a signal that even in rich countries, many see the appeal of less stringent copyright.

The counterargument to copyright reform is that there will be losers. The losers are supposed to be those who create, or the losers will be all of us. The conclusion is that either the creators receive lesser rewards for their work, and so they will be poorer, or the creators will simply create less and will do other jobs instead, leaving us all poorer. But Dickens did not stop writing because of American exploitation of his words. If anything, he was inspired by it – inspired to respond via Martin Chuzzlewit. The same internet that enables instantaneous and mass duplication of copyright works has transformed many other markets. The internet enables middlemen to be stripped out of supply and distribution, and the benefits are passed on to the consumer through lower costs. Take this to its logical limit and you do end up with an extreme – the same extreme as Benjamin Franklin not sharing the profits from the works he pirated. But far from ending creation, piracy simply changes the market dynamics. One source of revenue is closed, not all sources. Dickens made money by speaking. Musicians can make money from live performances or merchandise. The copyrighted content stops being a marketable product and instead becomes the fulcrum for a kind of marketing. This marketing is all the more powerful because it is spread from individual to individual, and cannot be manipulated by business interests. In other words, people promote the content they like, not the content they are told to like, and all studies show that we trust the recommendations of friends and ordinary folks far more than we trust celebrity endorsements and slick corporate promotion. The evidence is that this peer-to-peer advertising is effective in creating new revenues. This is a threat to the jobs of some middlemen, who are paid to influence the market, but is a boon to consumers and puts market power and intelligence back into the hands of the people who should be dictating what is popular and what is not. The significance of the advertising effect of free content is demonstrated by the observed correlation that the most prolific downloaders of pirated content also spend the most to legitimately buy content.

With a marketplace in rapid transition, it can be hard to identify all the factors that cause it to happen. The digital marketplace for copyrighted content does more than increase the potential to freely copy works that were originally created with profit in mind. It also reduces barriers to entry. It reduces them so far, that, at the extreme, the marketplace collapses. People just give and take freely. This has been observed already with open source software. We see it with the rise in so-called ‘user-generated content’ on sites like YouTube. ‘User-generated’ is a euphemism for ‘not to be taken seriously because it does not have a big budget’. Thanks to the democratizing effect of other technological improvements, married to the free distribution mechanism of the internet, then all it takes to create a popular song is to possess a guitar and a microphone, without the need for a marketing budget. Beneath the veil of piracy, the real factor that drives down prices is the proliferation of competition, from small business, from micro business, from hobbyists and people who create for the pleasure of friends.

Resetting the marketplace so that many can produce for many will diminish some business models. It also creates new ones. If you cannot profit by controlling a much-sought copy of one work, perhaps you can profit by using the work to attract people to other goods and services, or by embedding the work within another product. The music industry has recognized this, and now seeks to make more from new activities like selling t-shirts with lyrics written on them. This is innovation in the true sense – instead of just creating variations on an established theme, the goal is to develop genuinely new kinds of products.

Supply and demand suggests that the money saved on certain kinds of products just gets spent on others. This is the basis of the real value proposition for any economy. Either it remains stagnant, and tries to protect existing business models, or it is open to change and incubates new business models. Copyright was created for an old business model, and not a very good one at that. Technology has moved on from the time when printing presses were expensive and distribution of content was physical. Many of us may love Mickey Mouse, but perpetually extending Disney’s copyright stifles creation instead of encouraging it. Nobody wants to see some poor session musician struggling to fight poverty in his old age, but that is no reason to rewrite the contract he agreed when he first did some work. We would not go back to a plumber, fifty years after he does a job, and agree to pay him more than was originally stipulated for the original job, just because we feel sorry for him. Let charity be charity and business be business, without confusing the two. If we do confuse the two, we are likely to forget that expenditure on entertainment is discretionary, meaning that if more goes to Disney’s millionaire execs, or to some poor old session musician, less will go to anyone new who wants to break into the market.

Governments that try to preserve existing business models by defending copyright are missing the point. Creative people now have few barriers of entry to a huge potential market. Artists will simply short-circuit big businesses, by selling direct to the consumer in the same way that insurance brokers were frozen out by the rise in direct sales of insurance policies. Some will give work away just to get the foothold of recognition. Unhappy that your publisher does not promote your work? Then give it away and bet that the audience will see talent where the publisher does not. Giving his work away made Brazilian novelist Paulo Coelho successful. At the same time, discretionary spend on entertainment and education will still be spent on education and entertainment. That means new markets open up as others close. If people can get recorded music for free, then they have more money to spend on live performances. Or if they want something to enjoy at home, consumers will shift their spending from music to other content like video games, and this research suggests that is just what people have been doing. Seen in that context, it makes perfect sense for music businesses to change tack; if they cannot sell direct to the consumer, sell to the people who make games instead. This is innovation, and it is good for customers, even if painful for those businesses that lack the imagination or agility to keep pace with change.

Nations that have been great innovators face a risk. They have built up intangible wealth that will tempt some to simply sit back and exploit, instead of creating anew. To do so would be the worst mistake possible for the economy of not only rich nations, but of the world. Innovation, experimentation, change – these are the ways to keep on creating world-beating formulas. Monopolies of ideas are profitable only for those that control them. That means monopolies should not be allowed to live on longer than fairly required to recoup the initial investment that was needed to turn the idea into a reality. Money spent on enforcing and maintaining those monopolies for longer than needed is money not spent on developing alternative products. New capabilities inevitably give rise to new markets and these are the real and pervasive threat to old monopolies. The iPod allowed people to listen to as much music as they like, wherever they like, but it also gave birth to podcasting and a new world of creative opportunity. Listening to a free podcast means less time to listen to an album of music that you pay for. Sales of volumes of Encyclopedia Britannica collapsed in the face of rivals sold on CD-ROMs, and Wikipedia begs the question of why anyone should pay for reference texts. News services are happy to reuse the amateur’s view of major events, in the form of bystander photographs and videos, tweets and commentary from blogs. Such amateur content squeezes the market for professionals, but that does not mean amateur content should be prohibited or limited, or that the reader or viewer would be better informed by content that only came from professional sources.

Rich countries, like the US, got ahead by creating new ideas, not by just by exploiting them. And every nation has been greedy enough to exploit the ideas of others – when it suited them. Now, more than ever, piracy and the dissolution of barriers to entry mean new ideas have to be imagined and delivered at ever greater speed. You can try to slow the progress of competitors, but if that is all you do, they will still overtake you soon enough. Nations rich in intellectual capital should avoid the temptation to pour more and more resources into protecting its current intellectual assets. Intellectual assets only retain value if rivals lack the imagination to make something better. In a world where ideas are spread ever more easily, the dominance of a good idea will be shorter and shorter. The cleverest nations should stick to what they do best – investing in creating the future. If that means encouraging the next generation of Benjamin Franklins, that can only be a good thing.

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