The verdict is in… Media Pirates are undeniably and economically irrational, just like the rest of us.

A seemingly endless stream of statistics are in play these day suggesting (or proving, in the minds of some) that so-called pirates also buy music, movies, and other forms of digital media. What few if any of these authors discuss openly, however, is the fact that this strange behavior—buying some files and downloading others through unlicensed venues—is, for lack of a better phrase, undeniably and economically irrational.

Two of these recent findings would be:

Where do music collections come from?, from the American Assembly
Downloaden neemt niet af ondanks bestrijding, from the Dutch Institution for Information Law.

First, and to be clear, neither of these studies (and very few if any prior studies) are in fact “before and after” studies. Which is to say that these studies to not sample music consumption patterns before access to pirate sources and then after such access.  Therefore, we are still in lack of the conditions for a “this causes that” conclusion. We cannot say that pirating causes purchase behavior, whether that behavior is a greater or lesser number of purchases.

Second, some of these surveys ask users about their P2P behavior and then also ask about file sharing among friends and free downloads from online. In reality, many people may not be able to distinguish these sources, and some of these sources—such as file sharing among friends—might constitute P2P in small networks.

Finally, and ultimately, we can draw only one key conclusion from these sorts of studies:

People who download media from unlicensed sources are irrational—undeniably and economically irrational.

This observation, or assertion, should probably be the biggest curiosity for researchers and industry mavens. Instead, as the coverage of the two stories above goes to show, we are still stuck in the endless debate over who buys more, and whether piracy causes this or that.

Its time to move on.

Why do people purchase some media and acquire other media through “piratic” channels?

Frankly, understanding this question is to understand why and how the industry will survive going forward.




Why is a book about the future of “free”, going to have a price tag?

A good test of a new pharmaceutical would rest upon whether or not the team who developed the drug would use it on themselves, or their children. Unfortunately, what’s good for the gander is not good for the goose, when it comes to being free.Long Tail Anderson (the editor in chief of WIRED) has been able to make use of Wired magazine to promote his upcoming book. Note: the particular WIRED magazine (in paper form) is only available for free to the first 10,000 people to sign away their right to a spam-free mailing address here (“You may at times receive e-mail offers or information from Wired or carefully selected third parties.”).Unfortunately, judging from the article in WIRED, and the article in The Economist, Mr. Anderson strings together a great many buzzwords, sufficient to distract anyone from paying attention to the strings being pulled behind the curtain.Right from the start, the whole things sounds a little wonky:(excerpt) “The new model is based not on cross-subsidies — the shifting of costs from one product to another — but on the fact that the cost of products themselves is falling fast. It’s as if the price of steel had dropped so close to zero that King Gillette could give away both razor and blade, and make his money on something else entirely.”(excerpt)Never mind that cross subsidies are later listed as one of the business models for free, described as “any product that entices you to pay for something else.” SO  the new business model is based upon cross-subsidies for those who keep their attention.Regardless. The real bummer here is the ease with which this whole article repackages the past as the future of business.  Nothing in particular is the future of business.  However, this future will always involve someone opening their wallet and paying for something.

Must read book on whatever the heck entrepreneurship is

One of the most frustrating challenges when working, researching or teaching around the subject of entrepreneurship is the “what” of entrepreneurship.  What the hell is it?  More important, how do those assumptions people hold about this thing that is entrepreneurship stack up to reality?

Scott Shane, at Case Western Reserve’s Weatherhead School of Management, has written a book, The Illusions of Entrepreneurship, that is (imho) an absolute must read.

How does Google succeed?

After looking over the old Google aptitude test, I have been able to solve the riddle that is “how does Google succeed?” The answer is quite simple:

Google pays people less than they are worth.

This may sound like a harsh claim to make, but I would challenge you to find any business able to make a profit that does not fit the above-mentioned contingency.

You can hire the best people. But if you pay these people more than they are worth, you lose money. You can hire the worst people. But if you can pay these people less than they are worth, you will make money.

Google is able to hire exceptional problem-solving minds who have never focused these skills on calculating individual (or group) value in the context of the firm.

The cash earned by Google each quarter that could be directed towards salaries, is instead put into a cash chest that attracts investors. Shareholders balance the rest of the equation, by bidding up the stock’s value equal to, or beyond, the undervalued employee salary compensation.

Perhaps a radical perspective. But is it wrong?

Why do we believe in incentives?

The way in which companies try to solve the problem of unruly executives, or staff, and corporate governance seems to be dominated by the assumption of incentives.  We calculate our best interest, and as such, act towards the opportunities we find most compelling.  We can be incentivised to act in particular ways, therefore.  Stock options align the interests of managers with shareholders, for instance.

In the research on incentives however, its pretty evident that the above-mentioned equation rarely works out.  Many times, of course, we simply fail to imagine, in advance, those objectives towards which we would like people to align.  Other times, we fail to capture the incentives people truly value.  When we hit these nails however, it seems that incentives still don’t make the world fall nicely into alignment.

Given the fact that incentives exhibit very mixed results in terms of directing idealized outcomes, why do we still speak of people in these terms?  MacGregor (1951, I believe) developed his theory X and Y. But why are we theory X or theory Y?  Or more specifically, when are we most likely to find a home in either of these camps?

Chasing inflation backwards

So the latest CPI numbers came out today, followed closely by chicken little and all her friends running around screaming “inflation!!” Looks like energy costs may be, in fact, starting to creep into our price experience.

What doesn’t make sense to me, a degreed armchair economist, is just why exactly a federal reserve would chase energy-derived inflation with higher interest rates. I am reminded of my youth, where high gas prices conspired with rising interest rates to create one of the most ridiculous times in US economic history.

If inflation is being born from a high flying economy, sure, bring this economy back down with a little borrowing pressure. When the economy is not high flying however, and instead prices are rising due to raw, resource-relalated input prices (aka. OIL), let’s keep our finger off the “raise rates” button for awhile.

Not to mention, there would appear to be gazillions of dollars worth of capital sitting around. Do you want to direct that capital towards the government’s willingness to borrow more than ever? Or direct it towards investment in production and new combinations? Particularly at a time when local investment in new energy technologies and global competition for labor is prime.

While everyone has been going bananas over Web 2.0 (is it a bubble? is it a technology? is it a mindset?), a rather important suite of alterations to national and international intellectual property law have emerged. In this new conception of intellectual property, IP 2.0, ideas in physical form take on a nature far more powerful than regular run of the mill property.

A copy is no longer a copy. This is perhaps the most significant settlement taking place, in my opinion. This premise that intellectual property, when fixed to a media, is a copy – yet not really a copy. For example, in this emerging IP 2.0 world: (1) we don’t own the music- we never did (2) we don’t enjoy ownership rights of the copy (3) we don’t own a license to the underlying property (4) certain actors can lay claim to new copies (5) Those rights you do possess may be coded away from you. While some might disagree with these five points, let me argue the case.

(1) We don’t own the IP. This issue isn’t new and has always been the case. When you buy music, movies, even games you don’t own the underlying work. You get a supposed copy (which is truthfully indistinguishable from the supposed original), which you supposedly are free to use.

(2) We don’t own the copy. This is a noticeable shift. While it used to be the case that we could re-sell media we purchased (a consequent of first sale doctrine), this right is being carefully eroded away. The copy you purchase isn’t really purchased. Instead, what you have is a type of license, far different from other licenses we might own.

(3) You don’t own a license to the underlying work. Here is where the “now a copy, now its not” methodology completes its form. While what you purchased is no longer a copy you “own” and might resell, you also have no claim to continued access to the represented work, should you lose, break, or even move your version. You have a very special license that is your right to access the particular version imprinted on only particular, and approved media (CD, hard drive, etc). This third issue hasn’t taken on full form quite yet, but its seedy undertones can be heard in debates over fair use, time-shifting, personal copies, and even personal media servers.

(4) Certain actors can lay claim to new copies, the right of fixation. This is the trickiest shift of them all, courtesy the recent WIPO negotiations brought on by the blurring of national borders and the threats to broadcasting rights that are the internet (and upcoming wireless networks) and digital recorders (aka, hard drives). In point four, certain actors (those who “broadcast” media) can lay claim to rights surrounding the transmitted work. Its uncertain whether the consumer can forget time shifting since the broadcaster would own the right to “fix” such a transmission onto any media. This right is pretty special since techincally a copyright doesn’t exist until an idea is “fixed” to some media (paper, vinyl, CD, hard drive, etc).

(5) Those rights you do possess may be coded away from you. This final shift closes any gaps in points 1 through 4, by preventing you from circumventing protections placed onto media by claimed rightsholders. As such, if you do possess the right to use the purchased work in certain, even derivative ways, you cannot get to that right from here.
Combine these four, and you have what extensibly is a powerful shift in the potential of intellectual property. IP 2.0 is being permitted to take on a form far more imposing than real property, and more imposing than traditional relationships with intellectual property. Essentially, these rightsholders would be granted rather extensive monopolies over their products – including not only sale but also all forms of use.

Imagine a license to a patent if the patent could only be served from a single compact disc. Or the purchase of a house you cannot resell. Or rebroadcasting the comments of the president, for public comment, waiting to find out which network will sue you.

In the IP 2.0 shift, our relationship with recorded media isn’t even on par with that of a rental agreement. Instead, the relationship with media is fully conditional.

If I sell you a car, you cannot lend it or sell it. You could not take a picture of it for resale, since I own the design of the car. You cannot modify the car, since you ultimatley own no rights within the car. You cannot switch your car with that of your friend, even if they are identical models, since yours is not yours and his is not his. You cannot speed, since I have designed the car as such. You cannot crack the protection on the accelerator, since “cracking” the protections I place on the vehicle would also be illegal.

We are slowly converting intellectual property to something more than real property, not equivalent. While everyone is chasing the gold in Web 2.0, they might want to keep their eye on IP 2.0.