Sopa/Pipa Protests and the Economics of Content Market Power

Lynne Kiesling

I found some things striking in yesterday’s SOPA/PIPA protests. One was Jim Harper’s clear and cogent statement that the Internet is not a thing, it’s a set of protocols stipulating how computers communicate with each other. That set of protocols is a platform, and those protocols are not the government’s to regulate.

Jim’s Cato colleague, the ever-reliable Julian Sanchez, points out that if you estimate the profits/surplus at stake from piracy relative to the lost value all of the other Internet activities that would be stifled under SOPA/PIPA, the cost of piracy is just not that large. Sure, it’s concentrated in the hands of politically-powerful entertainment content companies, but relative to the rest of the vibrant, dynamic value creation that would “be disappeared” it’s small. Moreover, domestic and international legal institutions already exist to deal with piracy; like any other human institution they are imperfect, but as a consequence of them the losses from piracy are small relative to what would be lost if Congress imposed SOPA/PIPA. Here’s a good, short video from Julian covering some of the basics:

At Digitopoly, Joshua Gans makes an analogy near and dear to my heart: consider how SOPA/PIPA would make the Internet more like the arbitrary, intrusive, Constitution-free zone that is our airports:

But the notion that enforcement and prevention matters will be put in place that create massive harm to the lives of innocent individuals while being unlikely to really actually led to less of the activity targeted is not unprecedented. You can think about this every time you go through a US airport and think about who is winning there. …

So the scenario that US people should be concerned about is if publishing on the Internet becomes like airport security. That is, if copyright enforcers are able to automate enforcement without due process. That will raise the costs of publishing and will deter many. As is often the case with over-reaching laws, the problem is that it creates too few incentives for enforcers to enforce discriminately rather than indiscriminately.

These contributions to the discussion have all been outstanding, but the most useful one in my estimation is this TED video posted yesterday from Clay Shirky on the issues at stake in the SOPA/PIPA debate:

It really is a must-watch video, well worth 10 minutes of your time. Shirky describes the technological issues clearly for non-techies and delves helpfully into the legal history of copyright in media, but then makes the crucial economic point when he says “Time Warner wants us all back on the couch and not creating our own content”. In all of the justifiable furor about censorship, this is the economic point that gets a bit lost. For the past 70 years the entertainment companies have had a lot of market power, because entertainment was essentially an oligopoly. They profited handsomely from their market power over content. But with the decentralization and edge content generation now possible due to technology, and with the way that their content provides an input into that edge creation, we now have many more substitutes for their content. They are using the piracy red herring (which is not as large as they claim it is, as Julian points out above) to try to retain the viability of their decades-old business model and market power over content. That’s the real economic issue here — they want us back on the couch and in the movie theater.

This is a fight that is not new with SOPA/PIPA and the Internet, nor will it end with the Congressional retreat from these ill-designed pieces of proposed legislation. Yesterday raised a lot of awareness of the issues, but it’s going to have to happen over and over and over …

I’m going to give the last word to my friend Sarah, who makes a useful analysis of language and its use in the context of both SOPA/PIPA and the recently signed into law National Defense Authorization Act, complete with its provisions that allow extralegal detention of American citizens without due process on suspicion of terrorist activity. Sarah offers an analysis of Orwellian Newspeak language, and identifies disturbing parallels with our current environment:

It struck me today that the combination of SOPA/PIPA and the NDAA move us terrifyingly close to an Orwellian world where people, language, history, and information can disappear at any time. Forever. As if they never were. And worse than that, our primary way to discuss/protest/remedy that disappearance–the Web–will be taken from us as well. …

Newspeak as a language, then, mirrors the political system that creates it, and serves to support it and perpetuate it by creating an agreed upon reality where meanings are strictly limited, the possibility for unorthodox thought is all but eliminated, and an agreed upon “reality” allows Ingsoc to have been always in control. Winston’s friend Syme is correct that “Newspeak is Ingsoc and Ingsoc is Newspeak.”

I leave further connections to the contemporary political situation as an exercise for the reader.

2 thoughts on “Sopa/Pipa Protests and the Economics of Content Market Power

  1. It seems that you have won a temporary reprieve. I have very limited sympathy for the content providers. I remember CDs arriving. In Sweden they cost 130-140 SEK, compared to 90 for an LP. 2-3 years later, the LPs disappeared. The CDs still cost 130-140 SEK. That keeping the cost down might encourage more purchases and fewer cassette tapes never seemed to dawn upon the music companies. They managed to kill DAT though, as you might remember. DAT is still great for data storage.

    I am a Battlestar Galactica fan. After having bought the two first seasons on DVD, I geared up for season 3 whilst on a business trip to Morocco. The day after it was aired in the US, I fired up iTunes and clicked to buy episode one.

    “This content can not be purchased in your region” was the message I received. The intention was apparently that I waited 6 months for the airing on UK television. As far as I can tell, only harsh realities can make the various labels adjust to what the audience actually wants. Sony managed to infect windows machines with root kits. At the same time, no one has been able to figure out how to get micro payments working. I might be a minority, but I actually want to hand over money for content I like. But I can’t, at least not in a remotely convenient way.

    I went to China in October. My musical tastes are pretty eclectic, Beethoven, Ellington, Sinatra and Deep Purple are amongst my favorites. I do like my rock hard and loud. Purple played China in 2004, the first hard rock act to ever do so. “I didn’t know that five people could be that loud” a surprised student said.

    Youtube, Facebook and my own little blog in Swedish are all blocked in China. Iron Maiden, Purple and many others all play India. Maiden has yet to receive permission to go to China. I showed an Iron Maiden clip from Bombay on my iPhone to a Chinese engineer. “That is ‘rock music’, isn’t it?” he said. 1.4 billion people that can only listen to little girls’ music…

  2. I thought a bit more about this over night. For now, even if it is just for now, I don’t see SOPA as such a great threat to the freedom of expression. The reason for this is something else that makes me very, very angry. SOPA, if implemented, would be circumvented in the Western world, up to the point where we live in police states (although in Britain, apparently lawyers are able to ban speech and also ban the knowledge of the ban).

    But SOPA, and regulations about VHS tapes, DAT, DMCA, root kits on CDs and the like, have another, extremely perverse effect. It turns what reasonable people consider normal behaviour into criminal acts. It reduces the level of trust and the admiration for righteous behaviour in all of society, not only with regard to digital content.

    I used to pay for my shareware (now I can get it through the iTunes store). I got a warm and fuzzy feeling inside from sending off my $10 to someone who had created something useful. Now, cheating is the norm.

    It has reached a state where one is treated, at least in Sweden, as a deluded fool, if one wants to pay for a US television series.

    What politicians should do instead, is to take the line that the internet and all other past and future innovations, are great for the consumers. If the media companies can prove, in a court of law, that someone has stolen something from them, then they can bring a court action. But government will provide no help, whatsoever, in detecting this. It is a new world out there, and the media companies will have to deal with it.

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