Friday, June 22, 2007

Consumers Revolt Against High-Priced Media

A new age in the Internet was marked recently by a user-revolution at – a disgruntled hacker posted a 32-digit code that enabled tech-savvy consumers to copy DVD’s on their home computers.

He had hacked the code in a fit of anger after learning that the DVD he’d bought wouldn’t play on the monitor he owned due to compatibility issues. Digg immediately received cease-and-desist orders from the movie companies and, letters from corporate attorneys being rather terrifying, they took down the post.

Thing was, the Digg users wouldn’t stand for it.

They at once began to inundate the website with thousands of posts containing the 32-digit code somewhere in the text. Digg closed for a couple of days and eventually reopened, admitting defeat and vowing to stand by the wishes of the Digg community.

Rhetoric about internet democracy aside, the point of interest was that such a huge number of people had no problem with copying and sharing movies, that they regarded it almost as a right.

The hacker in question had tapped into a widespread resentment against the prohibitive pricing of the entertainment industry that has been exploiting its consumers for decades.

Anyone over the age of 25 will remember the days when the music charts were based on sales of 45 rpm vinyl. You actually had to stand up, take the record out of its sleeve, put it on the player and then repeat the process with another disc just 3 or 4 minutes later. It seems almost as surreal now as telephones where you had to wind the numbers around with your finger.

Similarly, anyone over the age of 20 will remember when VCR recorders were the technology of the day, meaning that you no longer had to miss vital moments of the movie when you went to the bathroom. That pause button seemed like a big deal at the time.

Sharing Seems Natural
Of course with albums retailing for $15-20 and videos for $20-25, not many of us could afford to listen to or watch all the media we wanted. It seemed natural to share what we could. I remember taking entire evenings to make a tape of my favourite songs for friends as birthday presents. Videos couldn’t be copied so easily but no one thought anything wrong in lending them out to friends and family.

Then the music companies made their greatest – and perhaps worst-ever – strategic move, one that would soon be followed by the movie industry: they went digital.

At first, it seemed like a marketer’s dream. Consumers were urged to replace all their aging collections of records and tapes with the new-fangled compact discs that would last a lifetime, give superior sound and where tracks could be selected at the push of a button.

Such was the naivete of those days that I recall taking the first ever CD I bought – a compilation of Wham, I’m embarrassed to admit – back to the store because a friend had stubbed a cigarette out on the disc at a party and it no longer worked.

“You told me it was indestructible,” I protested and, unbelievable as it sounds now, I got my money back, along with a little lecture on the advisability of buying more ashtrays for my room.

In any case, the music companies got to sell all their back collections again and the future of conning the public seemed rosy.

The movie industry followed suit with the launch of DVD’s and enjoyed the same kind of response, though by now people understood that discs got scratched easily and began to wonder what was wrong with the old days of video cassettes.

Along Came Napster
God bless the internet. It set us free in so many ways.

Suddenly, free information wasn’t limited to the shelves of your local library but was available to anyone who had a net connection. Websites learned to their cost that there was no point in trying to charge surfers to read their content – they’d just go elsewhere. So alternative economic models evolved featuring advertising and sales of products and the world became a richer place.

Slowly, we also understood that information includes all media -- such as movies and music.

Napster came along and across the world people began to hesitantly download music they were unable to afford, wondering just what was the catch. Computers allowed people to burn their own discs and it began to dawn on the public that it was really a rather cheap and simple process. If a blank disc could be bought for 30 cents and the music downloaded for free online, how come a CD cost $20 in the store?

There was some concern that downloading music was stealing from one’s favourite artists but it was an open secret that musicians only ended up with about 10% of the retail price anyway so why make all the middle men rich?

Napester was soon assassinated by Hollywood's hired guns but peer-to-peer technology meant that illegal downloads were here to stay, despite the plethora of lawsuits issued by music companies against random downloaders and the P2P providers.

But even as unfortunate users were obliged to pay thousands in damages for all the music they’d downloaded and services like Kazaa and Grokster were shut down, there was no stopping the trend. Last year P2P users in the US grew by 7% with illegal downloads up by 24%.

Of course, according to the music companies, that makes us all criminals. Lumped together with counterfeiters and commercial piraters, it’s suddenly become illegal and allegedly immoral to share.

The movie industry has even tried to motivate patriotic responses by alleging that piracy of films has close links to worldwide terror organisations. This film was brought to you by Al Queda? Hardly.

Not that the revolution in the sharing of media doesn’t represent a significant economic challenge.

While trying to write this article, I was repeatedly bumped off the computer by my girlfriend’s teenage brother who wanted to check on some hiphop tracks he was downloading. When I asked him if he felt guilty for taking music without paying for it he looked at me like I was crazy.

“What difference does it make to RZA if I get to listen to his music or not? It’s not like I can afford to buy it anyway.”

Like Turning on the Tap
For the rising generation, downloading music has become like turning the tap and getting water. No one really cares where it comes from, just as long as they can get it.

In my research for this article, the most interesting point of view I came across was from an economics analyst called Peter Dicola who observed that:

“When one person hears a musical idea, that idea is still 100% intact for the next person who experiences it. None of the idea goes away when someone consumes it.”

Dicola goes on to suggest that digital music and movies now have the properties of public goods like parks and the fire department. It’s problematic though because the latter are paid for by taxes and administered by government.

Can anyone imagine a government department responsible for allocating funds to up and coming rap artists?

In a way, the irony is beautiful. The media companies cashed in on reselling their stock in a digital format and, in doing so, inadvertently made it available to the world for free via the internet. If they’d only known.

Not that the companies are taking this lying down. They’ve gone to war with consumers on various fronts, cranking out legal, moral and economic arguments against the sharing of media. In essence they’re desperately trying to justify their own existence.

Shamefaced Hypocrisy
The strongest moral card they hold is that illegal downloaders are ripping off the artists. This, however, is the most shamefaced hypocrisy imaginable.

Media companies have historically been the biggest sharks going, pressuring artists into exploitative contract deals that cut them out of most of the money and limit their creativity. Their argument seems to be, "Buy the disc or else your favourite singers and actors will be sleeping in the gutters."

But we live in a world of changing media and the old economic models have to change along with it. Consider if you could buy the latest Madonna album direct from her website for $2 – would you really bother trying to download it for free from an underground P2P site?

I pick on Madonna because she recently took on the P2P services by flooding spoof tracks from her latest album where after a few seconds the track stops and she starts to cuss you for cheating her out of her royalties. Amusingly, a few creative users have made remixes of her words and made them available as creations in their own right.

In a way, digital media products are like alcohol and drugs. Restrict their sale and you create a new class of "criminals" who sell -- and buy -- the product underground.

Talent Scouts
The companies have also argued that they find new talent. But what they really do is find the same kind of talent again and again, washed-out acts that are easy to market to teen audiences.

Real talent tends to shine through by itself these days on sites like Myspace and Youtube and popular content spreads itself around – consider the band Ok Go whose video was watched by 1 million people within its first 6 days on Youtube.

The High-Tech Lock-Up
The next move by the media companies to justify their role as prohibitive middlemen is to try and control the technology itself.

Tunes downloaded from Itunes will work on one Ipod but may not be shared to another mp3 player. Microsoft’s Zune will allow sharing of tracks from one player to another but the track will cease to function after a few days.

These are all examples of the dinosaurs trying to hold the world back. Information is rapidly becoming free and just about everyone wants it that way. That’s why we download music like turning on the tap, wishing there was a way to compensate the artists but refusing to be denied cool music and media in the meantime.

Trying to control the technology itself only breeds resentment and the kind of reaction seen on Digg as a hacker took the power into his own hands and shared it with the world.

Since Napster, music sales in the US have fallen from $14.6 billion a year to $11.5 billion. That’s a complete nightmare for the company executives but no skin off the noses of the consumers who illegally download around 1 billion tracks a month.

The real issue here is not that artists can no longer make money. Music can be licensed in any number of formats including movies, advertising and events, not to mention artists selling directly to a loyal fan base from their own websites. No amount of movie piracy will ever be able to match the thrill of seeing a new release at the cinema with the giant screen and surround sound. Box office sales are healthy, only DVD sales are being hurt.

The real issue here is just how much money do these companies need to make?

The right to make a buck is sacred in America but the right to free access to information comes first. There's a reason the First Amendment comes first in the Bill of Rights, after all.

Expecting the consumer to feel pity for multi-millionaire movie and music stars is a joke. In any case if I see Tom Waits panhandling in the street I’ll be the first to buy him a coffee.

Critics point out that illegal downloads hit smaller, independent companies the hardest as they depend on direct sales. This may be true but it only suggests another economic model. Maybe artists should be selling for themselves directly. And if an artist has a song that’s downloaded illegally by 5 million users, they now have 5 million fans. That translates into lots of concert tickets.

Canadian artist Leslie Feist was shocked to hear American audiences singing along to her new songs – the album hadn’t yet been released in the US. When she asked her fans how they knew the words they yelled back:

“Illegal downloads!”

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