Kindle and DRM and Netflix too

After reading this post, I realize I don't understand my status quo DRM rights with Kindle.  That's not a good sign.  I did notice this sentence, which I didn't feel the need to parse any further:

Here is the major problem with this scenario.

As a reader, I find it good policy to keep the number of books on my Kindle to below twenty.  That forces me to read the ones I order and it also protects me from "stranded" consumer durables.  Uncertainty and confusion about my rights only strengthens my desire to keep that policy. 

As a writer, I expect the Kindle is temporarily in my financial self-interest, as it gets more "influentials" reading my work and perhaps talking it up.  In the longer run I suspect it means a lower equilibrium price for books.  One question is whether publishers use "sticky" or inconvenient DRM practices as an implicit collusive method for limiting the spread of Kindle.

Today I was struck by this passage about the origins of Netflix:

Netflix's selection of more than 100,000 DVD rental titles is made possible by the "first-sale doctrine" of U.S. copyright law, which permits buyers of DVDs to lend them out without studios' consent.

In Netflix's early days, its buying team would sometimes purchase DVDs at local Wal-Marts or Best Buys if it couldn't get copies through studios, says Ted Sarandos, Netflix's chief content officer.

In contrast, to deliver movies and television shows over the Internet, Netflix has to license them from studios. So far, it has gotten only about 12,000 titles, a hodgepodge of older films such as "Diehard," episodes of popular TV shows including "30 Rock" and a smattering of new releases.

That's right, we had more innovation because some of the usual copyright strictures about negotiating rights did not apply.  I am pro-copyright, but once again the default settings make it too hard for successful negotiations to occur.

Comments

I think if publishers could do it over again, libraries would not exist.

But do you believe the Netflix story about internet delivery? When having lousy internet delivery is the only thing that makes their price discrimination between X-dvd-out-at-a-time and Y-dvd-out-at-a-time plans possible?

Re: Paul - Personally, I believe the Netflix internet delivery story. The laptop/TV divide is still a big enough value driver that for most content, I would prefer to get the physical DVD. I know that I can somehow or other hook my laptop up to the TV, but it's too complicated for me to want to deal with. I believe the vast majority of consumers are in the same boat, and the remainder are likely not Netflix subscribers anyway (more early-adopter-friendly services, pirated content, etc.).

Regarding copyright, the licensing system seems like a huge barrier to innovation. Seems difficult to strike a middle ground between the current system and outright piracy. No good way to determine a default license fee without allowing crazy gaming of the system and unintended consequences.

WHY ISNT MARGINAL REVOLUTION ON THE KINDLE YET!?

"I am pro-copyright, but once again the default settings make it too hard for successful negotiations to occur."

Advocates of the abomination that is copyright should not be surprised at this. Maybe it is cause to re-think one's support of artificial, special-interest legislation created out of nothing by a department of a criminal state. As I noted here, referring to a $1.92 million verdict against Jammie Thomas for "illegally" sharing 24 songs, "The pro-IP libertarians ought to hang their heads in shame. If they support this result, it’s unthinkably evil. If they oppose it–well, they really can’t, can they, since this is the result of having a state-run IP system–of having a state at all. Every IP advocate is a minarchist; you cannot have IP without state legislation. But once you have a state and empower it to “make† law artificially, you can’t complain about the law it does make–especially if it is IP law and you support IP. As Mises said, “No socialist author ever gave a thought to the possibility that the abstract entity which he wants to vest with unlimited power—whether it is called humanity, society, nation, state, or government—could act in a way of which he himself disapproves.†

@David C:
I don't know where you're getting your info, but that simply isn't true. While I think the DMCA is too strict and possibly unconstitutional, there is absolutely no question that piracy has killed the labels. Allow me to relate to you a telling anecdote:

I play in a moderately popular local DC band. Our Myspace page averages 50 hits a day from all over the country, we have >15,000 page views. We self-released an EP last year. We've sold a few dozen physical copies and another 20 or so digital copies. When we pirated our own record and put it up on Mininova, it got 150+ downloads, and anecdotally, blogs who have posted our songs have also gotten many more downloads than copies we've sold.

Now, you could make the argument that the people we gave it away to wouldn't have heard it otherwise, but I don't buy it. I think they are mostly people who heard the Myspace, liked it, and decided to look for a free copy rather than paying for it. Now, imagine that 3 people are stealing the music for every one downloading it when your sales model involves hundreds of thousands or even millions of records, and you can understand why the industry is suffering.

Tyler: You might think this through a bit more. For one thing, it is not at all apparent why strong property rights should impede contracting rather than facilitate it. The issue in copyright, and something that is not, as far as I know, a problem at all for movies, is orphan works--works protected by rights but without people attached to those rights to negotiate over them. This is a problem, but it is not at all clear that the limited term of copyright does not deal with it well enough (along with other doctrines). We can quibble over the exact term (and its retroactive extension), but you'd be hard-pressed to demonstrate that the current system is so clearly worse than a range of proposed alternatives (although I would support decriminalization--there's no reason the state needs to be involved in prosecuting these rights and contracts). But the fact that movie studios may not be willing to license their movies at the price being offered is, to say the least, not in itself evidence that property rights are too strong. Pointing to the innovation that the first sale doctrine may have facilitated and concluding that weaker property rights leads to more innovation is counting only piece of one side of a complex calculation. I don't know the how it would all wash out, but, among other things, you also need to take account of the incentive effect on creation of larger payments from stronger rights, and you also need to take account of the prospect that other, better, stronger innovation may have occured without the weakness created by the first sale doctrine. Personally, I think it's probably a good thing, given the high transaction costs of both preventing subsequent uses and transacting to license them. But that's the right way to look at issues in copyright (transaction costs)--it helps the debate very little to look at innovation ex post and declare that the presence of weak rights that is correlated with that innovation means weaker rights lead to more innovation, without offsetting cost.

To put it simply, copyright lengths are far too long. With Disney lobbying to constantly up the copyright lengths, we now have copyrights that are expected to last forever. Is there any reason why copyrights should last more than 7 years, maybe 14 with an active renewal? That gives plenty of time for the author to exploit the material for money, but we'd end up having a lot of music, books and media available in the public domain. I doubt it'd do much to prevent new material from coming out.

AADL: A work of art is not an economic substitute for another work of art. And pizzas are consumed, not copied.

All we need are shorter copyright terms (15-20 years). Period. All the rest of these arguments are nonsense.

LDAA: that's a neat idea. Too bad it was already done in 1790, then doubled in 1909, then more than doubled in 1976. Let history repeat itself then we'll see who speaks of nonsense.

The problem I have in defining any term for copyright or patent is that any time period you assign is wholly arbitrary. 14 years, 20 years, 28 years, author + 75, 150 years, whatever. They're all arbitrarily chosen, which means they can [and have] be arbitrarily extended. The constitution says "limited Times" and while "author + 75 years" is definitely limited (so saysith the Supreme Court) it means that even if an author died on your birth day then not even you will see the public domain fruits it bears. Your grandchildren won't see public domain fruits of the Harry Potter series (assuming Rowling lives a long life).

I think the only way this would work is if you specify terms in a constitutional amendment, but you just better be sure they're "good". 28 years for a solid book may be right but 28 years for software is absurd. 28 years would put Microsoft Windows 1.0 to expire in 2013. Does Windows 1.0 still deserve copyright protection? Hah!

The term relevancy is dependent upon the industry and the current/future technology. It's an ugly, ugly can of worms.

Colin: You're being dramatic. Copyright royalties will fade to perpetuity in any industry, so that's your term.

Now, imagine that 3 people are stealing the music for every one downloading it when your sales model involves hundreds of thousands or even millions of records, and you can understand why the industry is suffering.

Right, but the objective of public policy is not to protect the profits of either musicians or (especially) record labels. It is to spur innovation and creativity. And I think that it's very hard to argue that the amount of new creative music being generated is lower today than 20 years ago. It's probably much higher thanks to lower costs of entry. No one has ever started a garage band to make money. Just now you don't need money to start a garage band and publish.

"That's right, we had more innovation because some of the usual copyright strictures about negotiating rights did not apply. I am pro-copyright, but once again the default settings make it too hard for successful negotiations to occur."

There will never be successful negotiations because content owners want to control the distribution medium. Youtube vs Hulu is a perfect example. Essentially Google has pissed off content producers and is paying for it dearly. After Hulu the model for content producers is obvious - allows techies to come up with innovative ideas, squash the techies and then control the distribution medium the techies created.

"Now, you could make the argument that the people we gave it away to wouldn't have heard it otherwise, but I don't buy it." - Nate

As Sam stated, I'm not making the argument that they wouldn't have heard it, just that they wouldn't have bought it.

As for providing a source:

http://freakonomics.blogs.nytimes.com/2007/09/20/whats-the-future-of-the-music-industry-a-freakonomics-quorum/
"there is surprisingly little evidence to support the claim that file sharing has significantly hurt record sales...More problematic is the likelihood that music consumers who used to purchase whole albums now download only one or two songs, so rather than getting $15 for an album sale, the industry gets two downloads at $2."

Look at it like this. Given your market share is so small, you can safely assume that your music wouldn't have appeared in so many locations online if you hadn't given it away yourself. Was there a period of time when you weren't giving away your music online? After you started giving it away, did you start having higher attendance at your concerts? Did this translate into more bookings or more CD sales? If so then you increased your income by giving your music away for free.

"Recording equipment is dirt cheap... distribution is dirt cheap... there is no minimum costs required for manufacturing... and there is no shelf space opportunity cost. Charging $12+ for digital downloads of music is outrageous." - Vehical Driver

The price has gone down slightly, but the main reason for the high prices is for major labels to cover the costs of advertising, which was important before the internet, but they haven't really changed their business model any more than they have had to since then. What happens is they'll sign about 5 or 6 bands, pay them $300,000 each up front, spend another several hundred thousand advertising their new album, and then only one of those bands will sell enough albums to cover those costs. You're basically being forced to pay for all the bands that they failed to succeed with.

"In the longer run I suspect it means a lower equilibrium price for books."

Yes, but this doesn't mean it's bad for you as a writer. In fact, it's probably very good for you as a writer. Authors can easily self-publish to Kindle for a cost no greater than filling out some forms and submitting a properly formatted file. Eliminate the book publisher and all the costs associated with them and a price has to be very low to cause authors to come out behind when all is said and done.

Marginal Revolution should be available on the Kindle. It's the same low-cost and would be a source of revenue with no continued maintenance. Something to consider.

Comments for this post are closed