Piracy is a Market Correction.

http://www.reddit.com/r/reddit.com/comments/ar53y/talking_to_pirates_the_people_who_steal_software/c0izjj4

by asciilifeform • 17 years ago

120 166 17 years ago

No, that's way too deep to be correct. Piracy is just an externality caused by an out-of-date copyright law that doesn't take computers into account.

People "steal" the content because they want it, it's easy, and there are no consequences (regardless of what the MPAA would have you believe).

It seems to be a big issue right now because there is an industry built around the old copyright system. Eventually, those companies will perish or transmogrify into something useful, and people won't even talk about piracy.

thasmin8• 17 years ago

People are willing to pay for creative work. The copyright holder should realize that rampant "theft" would indicate that their price is too high, and they should lower the price or create higher value work that people value at their desired price.

Copyright law may be outdated in that copyright holders are able to shout "piracy" instead of obeying the laws of economics, but I don't believe it is the main problem.

jacoblyles10• 17 years ago

>"The copyright holder should realize that rampant "theft" would indicate that their price is too high, and they should lower the price or create higher value work that people value at their desired price."

No, I think you're wrong. I think most pirates would continue to pirate media, even if the author increased the value of the media. They just take the extra consumer surplus and enjoy it.

anamax5• 17 years ago

> The copyright holder should realize that rampant "theft" would indicate that their price is too high, and they should lower the price or create higher value work that people value at their desired price.

And if the copyright holder doesn't realize or doesn't lower her price, then what?

patio11• 17 years ago

people won't even talk about piracy

No, producers will move to platforms where it is difficult to impossible. Care to guess how many people have pirated the SaaS version of Bingo Card Creator versus how many have pirated the downloaded version?

I am not the only person to have done the math here. Look at the sales of, say, MW2 on consoles (where piracy is hard) versus PCs (where piracy is trivial). Look at the PC games which actually sell, where World Of Please Pirate This Shiny Flat Paperweight is probably, what, 4 of the top 20 SKUs at any given time. There used to be a thriving PC games market. It has, predictably, shrunk to those sectors where it is actually profitable, avoiding sectors where 90% of the "customers" steal the product.

Every time I hear the online crowd whinging about nickle-and-dime models like microtransactions, and not being able to "own" the software they planned on stealing, I have a brief moment of that very hard to spell German word.

moe2• 17 years ago

producers will move to platforms where it is difficult to impossible.

That works only for software, not for media.

andrewljohnson2• 17 years ago

Sure, SaaS is a good model for some things. It certainly does have that nice feature of being unpiratable. That makes sense of course... in SaaS you aren't selling a digital copy that is fundamentally worthless. You are selling computing power, updates, support... stuff you don't need bunch of arcane laws to protect!

As copyright laws ease, some will turn to SaaS, but others will embrace the model of letting a lot of people have something for free, and charging those that can afford it.

Heck, people like to give books as an example of media that must be protected and that will never be free. But guess what... the most popular Kindle authors these days give many books away for free.

Moreover, the biggest companies have been turning a blind eye to piracy because they believe it helps them sell more software, for ages. Microsoft is the biggest example... as Bill Gates once said (and I paraphrase) - I'd rather you steal my software than buy my competitor's.

carbocation• 17 years ago

"I have a brief moment of that very hard to spell German word"

For those wondering, Patrick is (almost certainly) referring to schadenfreude: joy derived from others' misfortune.

actf5• 16 years ago

> No, producers will move to platforms where it is difficult to impossible.

Short of increased enforcement I completely agree with you - this is the only viable long-term solution. Ad supported software is always suggested as a another workable solution, but I don't buy that argument. Ad supported software suffers the exact same problem, it can be hacked to the point where eventually all the ads are removed.

Oddly enough I've always wondered why publishers haven't fought harder against the e-books. Books were already "on a platform where it is difficult to pirate". The move by publishers towards the Kindle seems to directly contradict: "producers will move to platforms where it is difficult to impossible".

mikedouglas4• 17 years ago

What changes to copyright law would decrease piracy, yet still incentive content creation?

I'm genuinely interested if anyone here has any ideas; it seems like a very difficult problem.

thwarted2• 17 years ago

I think first we must ask if content creation truly needs to incentived. That content would go uncreated, and that we'd somehow lose out on content that needs to be incentived in order to be created, and that said content is somehow more valuable than content that doesn't need an incentive to be created, seems like a pretty big assumption.

chrischen• 17 years ago

Agreed. And from my experience the willingness of a person to pay depends on the person, no their objective evaluation of the fairness of the price. In other words if you're filthy rich you'll be more inclined to pay for even overpriced software, and if you're dirt poor you'll be more inclined to pirate even cheapo software.

I saw this firsthand in a friend who, after getting a job, decided to start paying for software. I do the same thing. If I have money, I'll pay for a song, otherwise I listen on youtube and keep the tab there for the next 6 months.

mschy2• 17 years ago

Or perhaps copyright is a valid idea, and is not going to be abandoned.

Perhaps the government will simply increase the costs and risks associated with breaking that law until they are so extreme, and the risk of getting caught so high, that large-scale piracy will cease to be a worthwhile endeavor.

I know that HN is fond of the view that IP will be abandoned, but I see no compelling reason to believe your vision is more likely than mine.

barrkel• 17 years ago

I believe the institutional costs to ensure the practical security of digital IP always and everywhere would be all but indistinguishable from a police state.

One would have to outlaw user-customized hardware, non-corporate software development and build user spying capabilities into every device.

muffins• 17 years ago

That article is so ignorant.

I pirate because I would never be afford all the things I want or use.

I'm not saying I wouldn't pay someday when I have money, but the $ to content ratio is too high. It is not stealing a product, but a service. I'm stealing an experience created by a company (video games) or a sound created by musicians and not paying the entrance fee.

There is another side to the issue that he completely ignores.

derwiki2• 17 years ago

Why do you feel you deserve all the things you want that you can't afford?

emmett2• 17 years ago

Presumably because it's societally optimal for everyone to be able to consume as much media as they like (since it has a marginal cost of zero). He gains, no one else loses.

Of course, there's a massive externality to deal with: how do the people who create media get money for it? But in an optimal system (which we might not be able to create) everyone would still be able to consume as much as they want.

actf5• 16 years ago

I think the reason people feel this way is because of the competitive capitalistic nature of the society we live in.

If I know X% of the population has acquired something for free, how am I supposed to feel when I'm expected to pay for it. Our society places a lot of emphasis on being the best and always being competitive with one another. How am I supposed to be the best or be competitive with others, when the playing field isn't level. The only way in this case to level the playing field is to also engage in piracy.

madair• 17 years ago

It sounds like you just said that piracy is a market correction too, just from a different angle.

mikedouglas4• 17 years ago

> I pirate because I would never be afford all the things I want or use.

That may apply for you, but seems empirically false. Take, for instance, 2D Boy's recent "Pay Want You Want". The plurality[0] chose to give $0.01 (the lowest possible amount). I really have a hard time believing that $0.01 was anywhere near the maximum of what the average customer could afford, or valued the game at.

As long as it's without consequence and easy enough, people will take what they can. Leave a six-pack of beer in a communal college dorm and see how long it lasts, if you don't believe me.

[0] http://2dboy.com/blog/wp-content/uploads/2009/10/histogram.p...

rwolf2• 17 years ago

To put the data another way, the majority chose a higher value. It's not clear that the equilibrium price and the mode are the same.

jacoblyles10• 17 years ago

That's an awful lot of paragraphs to get to the point that the marginal cost of copying software is near zero, combined with a rant about what the author personally considers to be a "fair" price.

thasmin8• 17 years ago

There's also the fixed costs (development) to consider. The point he's making is that people are willing to may for software, but there's an inherent price. If the vendor's price is higher than the inherent price, people will pirate.

jacoblyles10• 17 years ago

Piracy is not the function of "inherent" price. The author postulates some price like (MC + (FC/units)) * 1.15 (where MC is marginal cost, FC is Fixed cost, and units is units sold) below which is "fair" and people will not pirate and above which is "unfair" and people will pirate.

If this is the case, then people should be less willing to pirate a game that costs $millions to make than a game that costs $thousands because it is more "fair" to pirate a game that was made on a budget than a game with high fixed costs. I don't think that is the case. Rather, I think piracy is a function of how much a pirate values his time and effort and how much he likes the software product.

solutionyogi6• 17 years ago

Pardon me, but this is total bullshit.

Piracy is not market correction. There is no reason a particular product has to be priced relative to the marginal cost of production. According to his logic, an audio cd should cost less than a dollar.

Producers can price their product however they want. Consumers have the choice to buy it if they can afford it. Trade happens only if both parties think that they are getting value out of it, econ 101.

Unfortunately in digital age, a consumer can get the product by illegal means even if they can't afford it and producer doesn't really have a way to stop this illegal behavior.

I am surprised that this post reached top of hacker news.

randallsquared4• 17 years ago

According to his logic, an audio cd should cost less than a dollar.

While I don't agree with the original post, this is not an argument against it.

Unfortunately in digital age, a consumer can get the product by illegal means even if they can't afford it and producer doesn't really have a way to stop this illegal behavior.

I agree, except I would say "fortunately". Monopolists should not have a legal right to their market, even if the market (for Metallica songs, for example) didn't exist before they began selling in it.

cellis4• 17 years ago

"Should" and "should not" are normative statements, and have no place in economic discussion.

albertsun3• 17 years ago

Why should Metallica not have the legal right to monopolize the market for Metallica songs?

solutionyogi6• 17 years ago

I am not sure why the audio cd analogy doesn't hold. Quoting the original post:

"Software ISN'T a t-shirt. A t-shirt needs cotton. That cotton must be dyed, woven, sewn, printed, packaged, shipped. Software ISN'T a meal. A meal has ingredients, and the more you spend on them, the better, and that goes double for your chef's salary. People understand where their money is going. People are just fine with paying through the nose when they get their money's worth. But no one likes to feel like they have been taken to the cleaners."

Looking up on Google, I can get 500 audio cds for around 185$ (http://www.google.com/search?hl=en&source=hp&q=audio...), per CD cost is 37 cents. Do you think that I should be able to buy the latest album of Backstreet Boys for 37 cents? Where do you account for thousands of dollars spent on recording the album? What about paying the artists? ....you know the 'fixed costs'. We still happily pay 9$ for an audio cd because it gives us pleasure which is worth more than 9$. As he says, 'getting money's worth'.

Tell me again, how is software any different? You buy the software ONLY IF you think software gives you more value than it costs you to acquire it.

netcan4• 17 years ago

I'm not sure why people come out with these moral axioms whenever piracy comes up.

"Monopolists should not have a legal right to their market"

Such a big statement with no real way of supporting it any further (the converse is also true). None of the rules around copyright or property ever came about because of any kind of "Natural Law" or moral reasoning. John Locke, be damned. Property rules were created based on existing conventions, or in some cases, created to correspond to defensible borders. You can hum a song or talk about it or play it on your guitar when you get home.

You can't sell copies of it? Why? Because printing, pressing & such are (were) possible to regulate with laws. Humming is not.

bugs• 17 years ago

You are correct in what you say about producers pricing a product and consumers having a choice. I believe that the real issue here is that consumers now have a moral choice and for many the morality of pirating a cd from a torrent site or even burning it from a friend is not a difficult decision.

You will have a hard time finding someone my age or younger (early twenties) who thinks that pirating a cd is equivalent to steeling anything; and building upon that idea many even think torrenting/pirating software and video games is an acceptable thing.

I don't know what will happen with music and its distribution but one thing I can say is it probably won't stay the way it is indefinitely.

nfnaaron4• 17 years ago

You're right that producers have the right to price.

However, it's not just about price, it's also about being able to get a product in the form and through the channel that a consumer wants. This relates to the current argument about the availability of legal downloads vs pirated downloads. And wait, wait, yes, you're correct, producers have the right to determine product form and channel. :)

The way that piracy can work for market correction is that it's information. A product's sales may not be performing as well as a producer would like. Is it because it's too expensive? Or do people just not want it? It could be one, or the other, or both, or other. Piracy, while illegal, is still an indication that yes, people do want the product, and it's desirable enough to break the law to get it. So what can we, the producer, change to convert those pirates and other non-consumers into paying customers?

A producer could (doesn't have to) use that extra information to help him think about his product's format, or channel, or price.

anamax5• 17 years ago

> it's also about being able to get a product in the form and through the channel that a consumer wants

Why do consumers have the right to their choice of form, channel and price?

If the seller is unwilling to provide as the consumer prefers, where does the consumer get the right to force the producer's hand?

What's wrong with "if the buyer and seller don't agree on terms, the deal doesn't happen"?

solutionyogi6• 17 years ago

I am sorry, but I disagree.

Producer has the complete right over their product. They can price however they want, they can decide the form and the channel by which you will be able to acquire the product. Piracy doesn't provide information. A free market with healthy competition lets producers know what consumers are looking for. And trust me, they do a fine job at it.

Imagine for a second that there was a 100% fool proof way to protect digital content. Do you think recording companies will be fighting with Apple about letting them sell the music on iTunes? If I were to guess, there would be an online music store from Amazon, from Microsoft, from Google, from Pandora and what not. All competing with each other trying to sell music. A song would probably cost less than a dollar because suddenly you can tap in to much larger consumer base. Unfortunately, there is no way to protect digital content and we are back to our imperfect world.

nfnaaron4• 17 years ago

"I am surprised that this post reached top of hacker news."

I sometimes upvote articles that I disagree with so that they'll live longer, because I want to see more discussion about them.

Does anyone else do this?

derwiki2• 17 years ago

That's why I originally voted this up, and why I voted you up. I wanted to see an intelligent HN discussion on the finer points of why this is bullshit.

mixmax2• 17 years ago

Yes, but only articles that have a valid point. I enjoy coming to HN because the linked articles have intellectual value, even if I happen to disagree with them. This one doesn't.

netcan4• 17 years ago

It is bullshit.

It's confusing between the economic outcome in a perfectly competitive market, "price drops to marginal costs" with a normative statement "price should drop to marginal costs."

Every business article you need. Every way of gaining "competitive advantage" is a strategy for avoiding this outcome. If the moral imperative,price should drop to marginal costs, existed and was enforced, doing business would practically be illegal.

solutionyogi6• 17 years ago

Bingo. You have put it way better than I did!

camccann2• 17 years ago

I think the implied moral imperative is generally taken to be "markets should be freely competitive"; everything else is details. Prices not dropping is just an indicator that a market isn't competitive due to, e.g., barriers to entry or government interference.

Of course, not everyone thinks free markets are morally preferable, so it's not really an imperative that applies universally.

camccann2• 17 years ago

Unfortunately in digital age, a consumer can get the product by illegal means even if they can't afford it and producer doesn't really have a way to stop this illegal behavior.

What do you mean "in the digital age"? Ever heard the term "black market"?

Of course it's a market correction, it just happens to be an extralegal one. The laws of economics don't stop applying, and the market doesn't go away, just because a producer has been granted a government-enforced monopoly; no matter how appealing the notion is, making something illegal doesn't make it magically disappear.

I have little doubt that producers could find ways to successfully sell their products anyway, but that would require sucking it up and admitting that they have to compete on actual value, instead of relying on massive government market intervention.

solutionyogi6• 17 years ago

Show me one example of a black market where consumer can get the EXACT same product as available in open market for FREE and if it is as easy as clicking a button on a screen.

Forget free, you will be hard pressed to find an example where black market offers a product which costs less. Black markets happen when consumer want something but they can't buy it legally (e.g. drugs, organs etc.)

rbranson• 17 years ago

I would argue that the open source software movement fits into the "black market" for purposes of argument. In many cases open source software is superior to commercial software. There are other ways commercial software competes, and they've tried to outlaw it in a roundabout way thru patent litigation, but in reality, they've just had to face the music.

pyre3• 17 years ago

> Unfortunately in digital age, a consumer can get the product by illegal means even if they can't afford it and producer doesn't really have a way to stop this illegal behavior.

That may be. But if the consumer consumes the product without paying because they couldn't afford it in the first place, can you really say that you lost money on that? If they didn't have the money to buy it in the first place, how could they have given you money for it if piracy wasn't an option?

The real cause of piracy (other than availability) is the over-saturation of media markets that we have. Example: If I want to buy a new video game for $60, that's maybe 4 or 5 CDs that I can't buy, so I download those CDs instead.

I know that some people will call it naive, but we live in a society where we are bombarded by marketing in which everyone tries to shout the loudest or find the best way to subtly convince you that you need their product (i.e. you won't be cool unless you have X). But we are now in a marketplace where the consumer can choose to pay for X and pirate Y instead of just deciding to (exclusively) buy X or Y. So it comes down to this: If everyone is able to convince me that their product is a necessity, then I'll end up acquiring all of those products, but only some of them will be paid for.

Note: I'm using a hypothetical 'me/I' in this explantion.

Groxx2• 17 years ago

There's also the "try before you buy" argument, where those who pirate typically don't keep what they nab. If you pirate something that you end up disliking, and would never have bought it without knowing if it's worth it (so, wouldn't have), there's definitely no loss to the publisher.

Besides. As many companies who have dropped DRM have found, many pirates are simply waiting for an unencumbered form of what they want. If the only legitimate porsche seller is selling half-crushed cars, and there's a perfect-quality one sitting next door with the keys in the ignition and a sign that says "free to a good home", is it even ethical to buy the crap one? (that said, all "would you steal a porsche" arguments are straw man arguments anyway)

robryan2• 17 years ago

No you didn't lose any money on them, but it does go a way to validate that persons activity as a social norm. If I can afford a game but my housemate can't and pirates it. I may then decide that I may as well do it to and save my money for something else.

mtoledo7• 17 years ago

I don't think this argument really holds.

Saying that you couldn't afford an item and therefore wouldn't have spent any money on that doesn't really mean you'd never spend any money on that given a free pirated option wasn't available.

The point being we do have the money, and we do can afford it. It's just that, when you can pirate it, you end up spending your money on other things instead. But its not like you'll never have enough money that you'll ever be able to buy one game.

It's interesting to observe the Playstation 3's market, because they've so far done what was unthinkable since way back the times of the PS1: a console you can't pirate.

So I have a loooot of friends that live on Brazil, and that pirated all their PS2 games. And that pirate music and movies too. Some even have an Xbox360 and pirate games on it too. But all of them buy PS3 games. They don't just leave their console there hanging, playing demos, as you'd expect.

seertaak2• 17 years ago

> So it comes down to this: If everyone is able to convince me that their product is a necessity, then I'll end up acquiring all of those products, but only some of them will be paid for.

Wait, you're saying 'only some of them will be paid for', even though you've been convinced all the products are 'a necessity'. A more succinct way of putting this, that I believe loses none of the intended meaning, is 'I want I want I want.' Of course, this behaviour is not to be blamed on you, poor consumer, for you live in an awful society which has bombarded -- yes, bombarded -- you with vile and shrill marketing in order to trick you into thinking you need it. The horror, the horror!

thasmin8• 17 years ago

That the producer doesn't have a way to stop the piracy is the crux of the issue. Because the black market exists, consumers have the power to place their own value on a product. This value is the price that they would pay for the product if it were legally available at that price.

The product's price is relative to the marginal cost of production because that's the cost on the black market. The producer is competing with the black market.

solutionyogi6• 17 years ago

I don't think you can compare black market with piracy. In black market, you do not get product for free. In fact, most of the time, you may through your nose for the product e.g. drugs/organs.

Show me an example where black market sells product at price which equals to marginal cost of production.

rms4• 17 years ago

Piracy is not a market correction. It is a superior product. What.cd and waffles.fm, with their depth of product and usability, make iTunes and Amazon music seem like a joke.

The music hydra does not just have every album, it has most versions of every album. When what.cd and waffles.fm are shut down, they will be replaced by four sites, possibly more.

For example, for The Beatles album Let It Be, the following editions are available, as high-quality MP3s and FLAC (currently just FLAC for the vinyl rips, which is fine):

24 bit lossless vinyl rip of the 1970 Apple record. 24 bit lossless rip of 1982 Japanese vinyl. 1987 Parlophone CD. 2004 Apple vinyl rip (16 bit lossless, alas). 2007 Purple Chick Remaster. 2007 Dr. Ebbetts Remaster. 2008 Dr. Ebbetts Remaster. 2009 Apple Remaster.

When the music industry can offer a product superior to piracy, they will stand a chance. When the marginal cost of production falls to zero, classical economics ceases to function and extra-market restrictions are needed to force the continued existence of the market.

mtoledo7• 17 years ago

In my mind, justifying piracy just because their products are superior is like justifying theft just because the commercial versions are crippled.

Besides, piracy is observed in other industries where there's no such difference (games, books), so I don't think that's the driving force.

ErrantX3• 17 years ago

> When the music industry can offer a product superior to piracy

Problem there is that the vast majority of people - be they pirates or normal consumers- cant tell the difference between the quality.

(also, TBH it's complete bull because a large amount of ripped music is of pretty poor quality in my experience)

ewjordan5• 17 years ago

When the marginal cost of production falls to zero, classical economics ceases to function and extra-market restrictions are needed to force the continued existence of the market.

You don't even need marginal costs to be zero - external utility factors are required for even the most basic of markets to function, laws being the primary example, but there are others.

For one, most people feel bad when they steal. They feel embarrassed when they are caught, even before they are punished. The likelihood of being caught stealing a physical product is rather high, and once you layer on the punishments, which are rather large, it's enough to make most people refrain from shoplifting.

Unfortunately for digital media, stealing and getting caught are both extremely impersonal acts, so there's very little embarrassment or guilt involved. And getting caught is so rare that the financial penalties are all but meaningless.

In my opinion all of these industries need to stop worrying about what is "due" them for their hard work, and start worrying about what the optimal price points, payment systems, and purchase/discovery paths are to get paying customers. These may be very different from the current levels, and may require radical steps: I don't think it's out of the question to offer vastly different prices, going as low as you can imagine, to different people based on how likely you think it is they will purchase the item. If it costs nothing to sell a digital copy of Britney's new CD, then it's crazy not to let someone buy it for $.25 if you're pretty sure they'd otherwise either pirate or ignore it.

These changes may end up meaning that margins and/or revenues are significantly cut from the pre-Internet era, but that's life. And if things do get so bad that certain types of information can no longer be produced, so be it, the market has spoken.

dkersten5• 17 years ago

According to his logic, an audio cd should cost less than a dollar.

Yes, this is exactly what pro-piracy people are saying. They are saying that content has always been free and the medium is whats being charged for, hence you sell papers instead of news stories, CDs instead of music tracks etc etc.

The problem is that its often easier (certainly easier on the wallet) to pirate than to buy. Since its so easy, people are going to do it - regardless of what you do - so you need to adapt. Sure, you can rely on laws, but when a majority of the population does something, how can you make it illegal? Eg, even Lily Allen, who is completely anti-piracy, herself "pirated" to get her music out there. She claimed she did it because she didn't realise it was wrong. Well, most people don't! If most people don't realise that piracy is wrong (cause its just sharing, right? and most people are taught from a young age that sharing is the right thing to do), then how can we really make it illegal?

Its a tough one. If we did say that piracy is Ok, then business gets very difficult because where do you draw the line? If its fine to pirate music, then its also Ok to pirate movies and games and business software and.. just about anything thats convenient or easy to copy!

The general consensus on #startups seems to be that SaaS is the way to beat this, but really, SaaS is just a (currently hard to bypass) form of DRM, when you think about it.

I don't know the answer and I'm not trying to guess. Personally, I'm trying a mixture between the conventional business model and adapting to the fact that if my software is popular, it will be pirated - I need to ensure that between legit sales and alternative revenue streams, I make enough to be able to ignore the piracy..

ErrantX3• 17 years ago

> They are saying that content has always been free and the medium is whats being charged for, hence you sell papers instead of news stories, CDs instead of music tracks etc etc.

That's only entirely true in a market where, using your example, the quality and content of news articles are identical.

People usually choose to purchase a paper based on the type of content inside; they might be paying more than the content is worth because of the media - but that is a slightly different point.

tybris• 17 years ago

Cooks make food. Musicians make music.

Just because you can't record food on a CD doesn't mean musicians are special and should make millions without working for it.

The only ones I'm the slightest bit worried about are writers.

netcan4• 17 years ago

How much should writers make?

rbanffy2• 17 years ago

"you can't record food on a CD"

At least not yet ;-)

radu_floricica• 17 years ago

It's roundabout, but it still applies. The main argument is that in a market economy, prices stabilize close to costs because competition exists. In this particular market, this cannot happen because each product is unique and gives monopoly to its owner.

But this is not written in stone.

Imagine an alternate model where artists still own full IP rights, including on non-commercial use, but use an open process to distribute their music. A free for all in distribution.

Or a model in which artists only make money in commercial distribution. Pirate Bay would have to pay, but downloaders not.

Or any model in which the artists can be compensated in two different ways. For example the classic way, and a way for listeners to subscribe to "unlimited mp3" plans. Of course, if both distribution channels go trough the same media companies, like I think they do now with online music purchases, there is no real competition to drive the prices down.

The crux of the matter is that the bottleneck is not at the artists, but one step down. Remove that, and lots of alternate models involving real competition can appear.

DrewHintz• 17 years ago

Chris Anderson describes a similar idea in his book Free[1]. Anderson says the price of an item converges towards its marginal cost, and the marginal cost of duplicating information is essentially zero.

http://books.google.com/books?id=lLZbXN2odVYC&printsec=f...

ct4ul4u• 17 years ago

Chris Anderson is not actually an expert on anything, you know. He's just somebody who has made a bunch of anecdotal observations and written a few books about them.

decode2• 17 years ago

You just described the field of journalism.

Batsu• 17 years ago

The authors best comments are in the last three paragraphs. The larger portion of the text may not speak volumes to the how or why people pirate what they do, but that last part really points out unfair comparisons that are drawn in regards to software piracy and other (tangible goods) markets.

albertsun3• 17 years ago

People pirate because they can and because when factoring in the punishment and the chance of getting caught they come out ahead by pirating.

Let's say that a piece of software has price p and that you get value v from it.

If v > p, then you will choose to buy it, getting v - p in consumer surplus. If v < p, then you choose not to buy it.

Now let's say that you can pirate the software as well, with chance of getting caught c and punishment if caught d. Pirating the software costs 0. If p > c * d then it's economically rational to pirate it, getting overall value v - c * d.

decode2• 17 years ago

You're basically asserting that people are rational agents doing subconscious (or perhaps conscious) algebra in their heads. I thought we learned long ago that people are not rational agents. Sometimes it is useful to model people as rational agents, and sometimes not. But to say that people are actually motivated, in a real factual sense, by some cost equation, just doesn't correspond to reality.

jacoblyles10• 17 years ago

People respond to incentives. Sometimes in strange ways, at the edges. But mostly they do.

richardw3• 17 years ago

So why do so many people not pirate software?

If you think it's just because they don't know how, then you're wrong.

I suggest because of their own sense of fairness. Most would not get caught but they still feel it's right to pay a software author for what they have created. Some cultures (currently) have more of this sense than others - e.g. the U.S. more than China.

joeyo• 17 years ago

I'd posit because the the product in the case of pirated or black-market software is almost always clearly inferior to the original software-- it has been cracked and changed in various undefined and poorly understood ways (certainly to the average person). There is some chance the pirated software will give you a virus, or be fake, etc. There is uncertainty about the product and people are naturally uneasy about it.

I suspect a similar reason for why most people don't buy black market goods: pirated handbags or knock-off electronics brands, for example. The quality is perceived as worse, or at least unknown.

Digital media (movies, music) on the other hand are more widely understood to be "exact" copies of the original and so there is less concern about the quality of the illegitimate good, to the point that it isn't considered illegitimate.

alttab7• 17 years ago

How many people steal Quickbooks? How many people steal ERP or CRM software?

Now how many people steal Photoshop, Microsoft Office, and computer games?

Its overpriced for the market, based on the added marginal value. The supply is greater than demand (especially for digital products - versus services - supplies are virtually unlimited), and people are correcting it by downloading it off the internet for free. These people probably wouldn't have bought it anyway - so its not stealing. And its not wasted resources by the these firms so they can't count it on the books as a loss.

This is economics 101. A supply curve goes up with cost, a positive relationship with price. As price goes up, demand goes down, and the market price is where they meet in the middle.

Because it cost virtually nothing to copy bits, the supply goes up. As the supply curve shifts up vertically, the demand doesn't necessarily change (demand curve shifting to the right) to compensate to keep it at the same price. Since demand is still at a constant rate (a certain number of people want to play these games), but supply is practically unlimited, ethically people can talk themselves into stealing it for free (correcting market price).

As software developers I think HN is a perfect forum for audience polarization, but the fact of the matter is both arguments have their merits and can coexist without mutual exclusion.

After reading the article then looking at the comments I was actually very surprised. But I'm merely adding my portion to the discussion.

cellis4• 17 years ago

How many people steal natural gas, electricity (yes you can equate stealing electricity to stealing digital media: it's transient, marginally inexpensive to transmit, etc)?

The difference is simply a matter of enforceability.

alttab7• 17 years ago

Natural gas is a resource that can not be digitally copied, and you may think electricity comes from vapor but I can assure you it costs money to produce it unless you have your own solar panels and are off the grid.

And its not necessarily a matter of enforcability as it is availability. If natural gas and electricity were as easy to steal as computer games or WiFi then people would do it. Natural gas and electricity, while commodities, are still limited by our technology and can not be given to everyone with a computer as easily as computer games.

marilyn• 17 years ago

Producers of software like Photoshop and Office stand to benefit from user level piracy.

For example, not many students and graphic artists starting out can afford to buy a copy of Photoshop, let alone the entire Creative Suite. If all the talented creative types opt to spend their time learning GIMP instead of pirating Photoshop and learning how to use it, the companies that hire them have no reason to buy the expensive software. In effect Adobe needs users to pirate their software to ensure there are as many people as possible who know how to use it, thus securing the sales to businesses.

alttab7• 17 years ago

That is a very good take on the Photoshop business model. Very nice. I never looked at it that way but I'd agree 1000% because professional shops will usually have legit licenses. "Photoshop experience a plus"

nzmsv• 17 years ago

Actually, MS has finally figured this out, and has a deal on Office for students ("the ultimate steal"). It's Office Ultimate for $60. Pretty much everyone I told about this who was using a pirated Office bought a copy.

richardw3• 17 years ago

"Because it cost virtually nothing to copy bits, the supply goes up."

There's a lot more to this discussion, because it's not a theoretical 'perfectly competitive' market. Supply in the case of one product is restricted to one supplier so it doesn't mirror a normal S-D curve. In a normal supply-demand curve supply moves up because others enter the market with equivalent products, driving the price lower until there's a balance. In the case of Office, others have entered the market and, having created alternatives, the price is lower than it would otherwise be. There is a lower limit to the (price x sales) of Office below which Microsoft would have no incentive to create it.

If the software market could be equated to a normal S-D curve with a single product in the market, software developers would quickly restrict the amount of applications they sell. You'd only have 100k Office licenses per year.

dlytle• 17 years ago

7 people at a LAN party I attended last month were in the process of trying to buy the latest Borderlands DLC when someone pointed out it had Securom. I had it in my Steam cart when I found it out, and promptly removed it. Everyone who played the DLC that night played the pirated version instead.

There are certainly cases where piracy is a market correction of sorts, but you certainly can't just narrow it down to a single cost-to-produce argument like the linked article. It's a large variety of different problems and incentives tied to a single, very polarizing, issue.

Trying to come up with a magic bullet solution/answer is just shooting at the wind.

jsz0• 17 years ago

This article is full of naive statements which means everyone will discount it but I feel like the core point is somewhat valid. Obviously content has to be developed, art has to be produced, someone has to manage the whole thing, you need to market it so people know it exists. Oh, and they all need health care and a reasonable salary. That being said I feel like the content industry is failing to adapt to people's habits for consuming their content. As a result maybe piracy is a correction of sorts. People are creating a set budget of how much they are willing to pay for entertainment. This includes cable/satellite, access to broadband, and old fashion offline entertainment. When you tally it up that's a pretty good chunk of money before you even buy a single movie, record or game. I don't want to listen to one or two CDs a month. I want a dozen. Maybe I won't even like most of it but I like exploring what's out there. Maybe I want to watch 3 or 4 movies a month. Not that unreasonable but the stuff they play on cable/satellite is awful to me. I don't want to watch those particular movies yet I'm actually paying for them anyway via the cable subscription. I have a seriously short attention span for games. Maybe I only want to play 5 levels of your game but I have to buy all 50 on the DVD for $60. I only wanted 5% of your product but you were only willing to sell me 100% of it. So when I look at $0 versus $60 the $0 just seems more fair to me so I go with it. I would pay $3 for it bundled into a subscription plan or micro-payment system.

stse• 17 years ago

This thread is a good example, for one of the reasons, why I try not to read HN comments anymore. (Failed this time though, as I'm very interested in serious discussions on this topic)

There's a lot of information out there for anyone who wants to actually try and understand the issues, instead of dismissing people who have though about them and claiming everything is bullshit, econ101 and stealing. How can you even have a discussion with someone that can't even differentiate between physical property and intellectual property?

Either we try and work around the issues and find solutions, or give up civil liberties in the name of stagnating business models. Incomprehension and ignorance must be the lobbyists best friends.

scotty79• 17 years ago

There are two services. One is producing unique content and second is delivering content to people who are interested.

Traditionally first service was paid by establishing monopoly for second service and channeling disproportionate gains from providers of second service to the providers of first service.

Since second service became ubiquitous (anyone can provide it at almost no cost and without involving anyone else except himself and his customer) it became virtually impossible to uphold this model of financing creative work.

Of course no one gives away old ways without putting up any fight, especially if old ways brought him mountains of cash, but all antipiracy campaigns are just futile attempts to play against the market that due recent developments in communication technology made coupling used in the past infeasible.

There are new ideas (new for the industry) how one can pay for creative work. Some are advertisement based. Some involve entangling content to services provided by server that is under complete control of party who has deal with content producer. Some (dumber ones) involve closing up content delivery process by limiting capability of device.

Some things turn out to be more profitable some less. Market adapts to advancement of technology. Some people are not seeing money that past experience led them to believe they deserve but that's just the way life goes.

Technology giveth, technology taketh away.

colinplamondon• 17 years ago

Yes, if only greedy developers would drop their App Store prices from 99 cents to 25 cents, all the Crackulous pirates would immediately start purchasing apps. They just don't have the extra 75 cents to spare!

Super_Jambo• 17 years ago

My position on this is to come from the other end, i.e. start at the moral side then journey into the economic.

Economic laws have been developed over time for the good of society. We started to settle and farm so we needed property rights. This was so your hunt didn't kill my dairy cow - disrupting both our milk and cheese nommage.

Intellectual property rights exist then to ensure that society has a good supply of IP. Their success should be judged not on the moral value of you 'stealing' my 'work' but on how the copywrite and patent systems changes supply and demand curves from the baseline that would exist without the extra rules (and costs associated with those rules).

Remember it was not illigal for you to hunt my dairy cow because of how unfair that feels. If I'd been keeping a friendly rabbit alive society wouldn't have bothered with property rights. Society wants more Meat and Cheese, not warm fuzzies.

So where does that get us? Well, does anyone truly believe they'd be music starved if they could only listen to the current back catalouge + what would be made for the kudos / enjoyment / profit from merch & performing? No chance. Music should be free, we have a VAST oversupply and there are ample incentives to keep people supplying it without authorized monopolies.

Books? Movies? Games? With these the cost of production is alot higher, the argument that people would do it for free still exists but it's less obvious how they could leverage resultant fame into some kind of money spinning live performance. I think here society needs to have the debate, but for it to be useful it MUST be framed in terms of supply, demand and what behaviour the system incentivieses. Not self-rightious moral 'right' of what you 'deserve' either from the pirates or the artists.

alextgordon• 17 years ago

There are many different motives for piracy. Some are morally justifiable (at least to me), some are not. For example:

* Lack of available funds. This is a mostly harmless (and sometimes beneficial) form of piracy. If a person has $75 and a product costs $200, then their two options are non-purchase and piracy. In this case, piracy cannot financially hurt the owner, as the person could not have bought the product in the first place.

Adobe have used this kind of piracy to their considerable advantage. High school and college kids pirate Photoshop and become proficient. They go on to become professionals, already locked into Photoshop.

* Unwillingness (but not inability) to purchase. This is a harmful type of piracy. A person has the available funds, but pirates something through pure unwillingness to pay for it. This is seen mostly in music and app store piracy.

This is a difficult kind of piracy to deal with. How do you compete with something that is free? One notable success is Spotify, which has displaced a proportion of piracy by merely being more convenient.

* Non-availability. This is particularly prevalent in the piracy of TV shows. Frequently a program is shown exclusively in the US, and is not available in other countries for months or years, sometimes never at all.

This is potentially financially harmful to rights owner, but as those pirating the shows only have the options of non-purchase and piracy, it is justifiable.

* Superiority of the pirated product. For example, music at a higher bitrate than can be easily purchased, a pirated TV show that can be watched at any time in full 1080p, a pirated game that does not include restrictive DRM. This type of piracy is financially harmful.

Morally this is a bit of a gray area. Perhaps the moral solution is to purchase the inferior product and pirate the superior one. This is however still illegal. The general solution is for the rights owners to "compete" with pirates, to provide equal products.

gabrielroth• 17 years ago

Obviously this is totally wrong, for reasons others have pointed out on HN. But it contains an interesting germ of truth: Consumer psychology around pricing gets complicated.

A couple years ago, my local bagel store raised its prices. When they did, they put a notice next to the counter saying, “To our valued customers: Recent increases in the price of wheat have forced us to raise prices. We hate to do this, but it’s the only way we can continue to pay our rent. This will be our first price increase in almost eight years. We hope you understand our situation.”

According to Econ 101, this sign was a waste of time. Customers will look at the new prices and decide whether or not to buy bagels at those prices. In fact, according to Econ 101, the bagel store might just as well have put up a notice saying, “Dear customers: We are raising our prices because we’d like to increase our profits, and we suspect that many of you are not very price-sensitive.”

Of course, no one conducted an experiment to see what effect the sign had on business, but I’m prepared to bet it helped minimize the drop in business from the price hike.

Econ 101 has no concept of “fair share,” but consumers do, and they’re willing to take losses to prevent someone else getting more than what they perceive to be his fair share. (http://en.wikipedia.org/wiki/Ultimatum_game) This isn’t right or wrong—it just is.

If you’re selling physical goods, you should sell them at whatever price enables you to maximize your profits, just as Econ 101 suggests. But you should also suggest, in the way you talk about your product, that the cost is determined largely by the cost of your inputs.

If you’re selling intellectual property, well, it’s a bit more complicated because everyone knows the inputs don’t bear on the marginal cost of each item. But it might be helpful to let everyone know that you’re not getting rich. Let your customers know you’re trying to support a family as an independent software developer, or that you still work a day job to allow you to make music. Don’t let people think you’re ripping them off.

Of course, when your product is easily available for free on the black market, as is the case with piracy, none of this makes much difference. Consumers prefer to pay the lowest possible price. Econ 101.

calcnerd256• 17 years ago

theft is market correction ... if we take the market as orthogonal to morality

Piracy is a Market Correction.

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