b.cognosco
Where leaping to conclusions is my primary form of forward motion.
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Tuesday, May 17, 2005
IP Theft and the Trade Deficit
The Glittering Eye has collected some useful information on Chinese piracy and the scope of its impact on our economy. There’s a good collection of reference articles and press releases – “US May Bring WTO Case”, “Hollywood Loses $900 Million to Pirates”, and Forbes - and the author does a good job outlining the available options for correcting the problem.
Or part of the problem. As with almost every single story on piracy, the articles listed above use wholly inappropriate, even ludicrous, numbers for the value of piracy. Whether the numbers come from former US Trade Rep Bob “Patent ‘til you drop” Zoellick or the self-serving lawyers over at MPAA/RIAA, they all share one common trait — they take a universal 1–to-1 ratio between pirate copies and lost sales. This act of starting from a false premise and proceeding logically leads to absurd conclusions like this – “ U.S. music, movie and software industry groups estimate they lose between $2.5 billion to $3.8 billion annually in China through sales of illegal copies of their products.”
$3.8 billion my lilly-white ass!! Have you ever been to China – where they still hand-carry their raw sewage in buckets? Have you seen Chinese peasants riding 20–year-old bicycles down modern, but empty, thoroughfares? Sure, there is lots of economic growth in China (I do some business there), but growth from a zero base has to go a long, long way before spending a month’s pay for a movie looks like a good idea. If you think for a minute that the typical Chinese wage supports paying $15 USD for a CD, $20 USD for a DVD, or $299 USD for a copy of Windows XP then I have some great business investments I’d like to show you.
If the vast majority of Chinese didn’t have pirated copies they wouldn’t have any. They don’t just hop in a Beemer, run down to Chairman MaoMart and buy one. No, they wouldn’t have a copy. None. Zero. Zilch. Nada. And that’s the real economic impact of the vast majority of pirated copies – zero.
I don’t know if the actual ratio is one lost sale for 100 copies or 1,000, but the bottom line is that, while there is clearly an economic impact to the theft of American soft products in China, it is nowhere near the dollar value the industries and flag-waving bureaucrats like to pretend. The premise that a pirate copy in Asia has a direct corollary to a lost sale (the music industry in Germany went so far as to assume a 1–to-1 ratio between the number of blank CDs sold and lost sales) is as realistic as assuming that every television viewer of a sports broadcast is a lost ticket sale (Oh, wait – the NFL makes exactly that assumption.) And the companies complaining the loudest *know* that. Why else would they be falling all over themselves to get their products into Chinese markets? If all those markets meant were losses you can be sure they would be running in the other direction.
Instead, US companies are dying to get into the Chinese market. And that – along with the knowledge that piracy is nowhere near the economic threat they like to proclaim – is why the US won’t do anything significant about China’s piracy problem.
BTW, the next time anyone starts talking about losses to piracy, China or otherwise, ask them a simple question – “What’s your estimated ratio of pirated copies to lost sales?” If they give you an answer that is anywhere close to 1–to-1 just laugh and walk away, because they’ve obviously taken you for an idiot. (Via EEJD)
Terry Frazier at 8:56 PM
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Sunday, May 15, 2005
Another 'Broadcasting is Dead' Story
This article, Piracy is Good, over at Australian site Mindjack, is a good description of the effect technology is having on broadcast television. Author Mark Pesce discusses, in some detail, the use of p2p filesharing technology BitTorrent and, more importantly, proposes some interesting business models for how producers and advertisers can collaborate to create a viable business.
Mark uses a couple of good case studies, including recent download scenarios for Dr. Who and Battlestar Galactica, to make the case that downloading does not necessarily equate to lower viewership. He also offers good analysis of the economic situation broadcasters face after 50 years of training viewers that TV is free, trying to suddenly convince them they should be paying for everything isnt going to work.
This, of course, is not news to anyone who regularly reads weblogs, RSS feeds, or uploads pictures to Flickr. But Pesces is one of the first articles Ive seen to dig into the figures around p2p distribution, broadcast viewership, and the relative impact for popular TV episodes.
Im not ready to concede broadcast is dead even the latest bittorrent clients are too geeky for mass use but Pesces case for advertisers is compelling. And if one thing is certain, its that advertisers follow the market. A commericalized, ad-supported p2p distribution network with viewer tracking cant be far away.
Terry Frazier at 1:14 AM
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Saturday, May 14, 2005
Frank Zappa Was THE Man
As Zappa would have said — “Poot”
But that Would Have Killed the Music Industry, Right?
“We propose to acquire the rights to digitally duplicate and store THE BEST of every record company's difficult-to-move Quality Catalog Items [Q.C.I.], store them in a central processing location, and have them accessible by phone or cable TV, directly patchable into the user's home taping appliances, with the option of direct digital-to-digital transfer to F-1…
All accounting for royalty payments, billing to the customer, etc. would be automatic, built into the initial software for the system.
The consumer has the option of subscribing to one or more Interest Categories, charged at a monthly rate, without regard for the quantity of music he or she decides to tape.”
-- Frank Zappa invents Rhapsody, Napster in 1983 [Good Morning Silicon Valley, via Shawn] via Jenny Levine
Terry Frazier at 1:24 PM
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