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Competing against illegal copies

I was somewhat baffled about the success of Apples iTunes-Store.

As I detailed in an earlier article Schwarzkopien und Marktwirtschaft in german, illegal providers of copies of works are effectively a competition to legitimate providers. In principle, they offer the same product for less money. Market says, in that case, people will acquire the cheaper product. However, there are some factors which can change the outcome in different ways.

The works itself

  • Digital Restrictions Management (DRM). This will somewhat alleviate the availability of people illegally giving out copies; on the other hand, it effectively punishes people buying from the legitimate vendor. It decreases the value of the legally obtained product.
  • Metadata. This increases the value of products, especially if every product of this type supports the same metadata, ordered the same way. If I can offer 100’000 works, all tagged the same way, I have a distinctive advantage over people offering illegal copies, because those copies will not adhere to any common standard where metadata is concerned, as a result of the very fragmented nature of that “market”.
  • Quality. This is another thing that increases the value of the product, and also something that can work in favor of the legitimate vendor, because here too, he can offer products of consistent quality all over the whole portfolio. Of course, if your quality is lower than the average quality of illegally offered works, you’re going to loose.
  • Usability. This is on one hand related to DRM (which decreases usability by placing restrictions on what one can do; but also trough the demands of the DRM-system itself, i.e. the 50% increase in processing power needed by the Content Scrambling System of the DVD), but on the other hand also determined by other factors, like interoperability (can I access the work from different devices and operating systems), availability of software that can manage and/or process the work, bandwidth needed to transfer the work and processing power needed (which can be unrelated to DRM. For instance, compression needs processing power too). It’s a bit difficult to tell who can achieve an edge here, but generally, widely used and patent-unencumbered standards will have an edge here, because they attract programmers and manufacturers to produce software and devices designed to work with the content.

Distribution

These all apply to the works itself. But there are other factors which seem to make a crucial difference to shift the advantage towards the legitimate provider, and we can see that most prominently in the case of iTunes.

  • Availability. How easy is it to get the desired works? And here, legitimate providers can really ramp up, in ways people offering illegally the same products can’t compete.
  • Other competition. Actually, all works are in competition to each other. There are more works on this planet than anyone will ever be able to listen to, to read or to watch ever in his lifetime. This doesn’t affect people who illegally provide works; but it very much afflicts legitimate providers, insofar one can sell somebody only a limited amount of works. Since the body of works is so much bigger than anyone can consume, and there are even a great many works available legally for free, so apart from advertising and trend-setting, it can only mean one thing: Price.
  • Price. On the outset, it looks like you can’t compete with a price-tag of “zero”. However, as it turns out, combined with easy ways to access and pay for the works, there is a price that is “low enough”. There are of course challenges for a legitimate provider to achieve this price, because historical precedents (i.e. “a book on paper was always this expensive”) and grown structures (like the byzantine ways of music- and movie-distributions) tend to get in the way. Right now, people illegally offering copies have the edge, but by abolishing of price fixing and radically re-structuring collecting agencies this could be fixed.

Law

And with “collecting agencies” and “byzantine distribution channels” we arrived at another very different factor influencing the competition between legitimate and illegitimate providers of works: The law

This is actually a bit hard to dissect, since it not only covers the relation between the creator and the final recipient of a work, but it also rules the relation between intermediaries and sometimes even institutes them.

  • Acceptance. Right now, the law is not working in favor of the legitimate provider of works, although it was written by them, and designed to grant them rents. Which is precisely one of the problems, because nobody respects the law anymore, after all, it’s just right-holders giving themselves more and more rights to allow them to collects rents.
  • Complications. The structure of how works should be distributed and the return-paths of payments have been cemented in by laws, sometimes instituting collection agencies who should work on behalf of rights-holders, and making it generally very difficult for someone who wants to re-sell works.
  • Unknown rights. A further problem induced by law, is that for a large body of works, the right-holders are unknown (orphaned works), impossible to get (because they were split amongst heirs) or very difficult to get (because of byzantine machinations of right-holder cartels sanctioned by law, e.g. right-holders representatives differing regionally, making it impossible to (re-)sell a work in an international market).
  • Outlawing tools. This is a bit nonsensical. A solution looking for a problem. The idea is to outlaw tools which can be used to break DRM systems. However, apart from decreasing acceptance of the law, it also produces problems regarding accessibility, and reliance on it might lead to very grave problems in the future, for instance with archival. Right now, it does not help legitimate vendors and is mainly used to quench competition in fields unrelated to illegal copying.

Final notes

Finally, a lot hinges on the law.

Ideally, you want to have rights to a lot of works, in order to make them easily available in high quality with consistent meta-data and no DRM for a low price. This will allow you to compete successfully against copies offered illegally, which are more or less tedious to get, of wildly varying quality, have inconsistent meta-data, but no DRM and a price-tag of zero.

To get that body of works, the law isn’t helping you right now, it’s hindering you in various ways. Also, the sheer land-grab by previous generations of right-holders has left the general public with disdain and with no respect for copyright.

There will always be people illegally offering works, but the point is that this phenomenon should be relegated to a small percentage of the market. Because it should be easier for you to legally publish works, and easier for the public to acquire such works, leaving only people who really can’t afford even to pay very low prices to need to revert to illegally offered copies.

References

I’ve written a lot about these issues. So if you think there is too little evidence presented, or would like to have addressed some issues a bit more in-depth, here’s the other things I’ve written:

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