Thursday, August 19, 2010

The Economics of Abundance

I keep hearing about how record labels and media companies keep arbitrarily blocking youtube videos that contains any part of a copyrighted song or video and also of their massive effort in suing every Tom Dick and Larry that has every used bit torrent technology sometimes jamming as much as 4,000 defendants in one suit. Some law firms have even developed a method of litigation that seems more as a business model than a suit for redress of a wrong. It’s as if these record labels and media companies have dug themselves a trench, a deep legal trench of litigation surrounding their old and decaying business model desperate to protect it or at least to milk it dry before anything compromises it and renders it irrelevant.

As i see it the goal of P2P suits is not really to curb the practice of file sharing. If that were the case then they would have probably realized the futility of their efforts. They can’t possibly hope to sue every single person on earth that uses file sharing technology (which probably includes their own children and relatives), especially where most users live outside the US – where most of the litigation occurs and the content that gets ripped off is generated. The suits are more plausably a activity to generate revenue (and to milk the apparent contradiction in the Tech vs. Law paradigm). Even if these P2P suits turn out to be an enourmously profitable activity, would record labels or media companies want to be known as companies that generate a substantial portion of their income through such suits - having more in common with profit-oriented litigation (almost similar to the practice of some patent holders who do not execute their ideas and instead sue others who stumble upon the same idea and actually execute it) than media? If the trend of P2P sharing were to continue and accelerate over time regardless of such suits it seems a plausible reality that that might happen - record labels might eventually earn more from their P2P suits than from the sales of their records. What then? The predominance of P2P file sharing on the internet should have made them realize that its time to change business models. File sharing accounts for half the traffic on the internet. That's Half! Don’t believe me? Check here, here and here*. They should accept that fact. The internet was built for sharing and not for building walled gardens of content where only the record labels and media kingpins hold the key. Well they probably do hold keys but so do the rest of us - with our nifty laptops and reasonably fast internet connections, we all have keys into their gardens. What they should be focusing their energies on is finding some other business model that allows them to charge their unconscionable costs and salaries on members of the population willing and able to pay. Taking the metaphor a little further - instead of charging us for entrance (into their gardens of content which they couldn't really keep anyone out of in the first place) they should instead just sell us memorabilias.

Have I vented too much? I just really really like file sharing**. Anyway, this here is a short video from tech dirt which talks about how the digital age has transformed the applicable economic theory of traditional business models from one of scarcity into one of abundance. Something I think record labels should take think about, contemplate deeply and take to heart. Here’s a transcript of the video:

Traditional economics is about resource allocation in the presence of scarcity. You have a group of people, you have limited resources and economics explains how those limited resources get allocated. But what happens if you don’t have scarcity but abundance with more than enough for everyone? Suddenly certain assumptions get turned on their heads. This is what we face today in the digital world where industries whose business models used be ruled by scarcity must now deal with abundance.

In the era of scarcity, price in a competitive market is determined by the intersection of a down sloping demand curve, up sloping supply and where they meet is where the price gets set. But in a market of true abundance supply is not even in question – there is more than enough for everyone. Supply then becomes a flat curve, demand is still a down sloping curve and the point where they meet is going to be a price of zero. But that’s not a bad thing as it actually enables all sorts of other business models and that’s because for every abundance additional scarcity is created. For example the more abundant music is the more demand there may be for live shows or merchandise from a favorite artist. The trick is looking at every new abundance and realizing what scarcities they impact with important but often overlooked scarcities being things like attention, time or access. But never fear abundance learn to embrace it by aligning the proper scarcities.

*ok so maybe they don't all agree it's half but still all of them say P2P constitutes a substantial part of internet traffic that's still something
**this statement is not an admission by the author of the commission of any activity in violation of intellectual property laws of the Philippine; record and media companies pls pls don't sue me

Linus Madamba

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