Apr12th

2012

April 12, 2012 @ 09:00:00
Failed Business Models of the Past, Eh?
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This is a repost of my article that I published at MINCOV.COM May 30, 2010.

In case of dissemination of music, movies, software, books or other works of copyright (I will refer to them as Content), business models are nothing but an interface between Creators and the public. I will be using the term Creator to refer to a natural person in result of whose intellectual and creative efforts Content is created, even if according to applicable law, the first owner of copyright in the Content is some other person. I will be using the term Owner to refer to the current owner of copyright in Content.

A model may only be successful if it meets the needs of Creators, the public and those who provide the interface. Buyers always want to pay as little as possible for the best product available, while the sellers always try to maximize their profits. What makes a business model successful is that it provides an equilibrium between the desires of buyers and sellers.

Also, one successful business model should not necessarily replace all others. Different products require different business models. It would be preposterous if manufacturers of luxury cars used the same business model as manufacturers of toothpaste, even though both manufacturers share the same ultimate goal of maximizing their profits. However, no one seriously suggests that Maybach should be forced to produce millions of cars and sell them cheap. Likewise, no one is forcing Colgate to only manufacture elite sorts of toothpaste and sell it on auctions for several hundred thousands of dollars per tube. If Maybach suddenly realizes that no one wishes to buy their Excelero for $8 Million1., it may reconsider whether it is a good business model. But it will surely not be making these amazing cars if a gang confiscates every new car at the gate of the factory, sells these cars on eBay for a few hundred dollars and then calls it a “new business model” that the greedy and old-fashioned car manufacturer “needs to embrace”.

The term “buyer’s market” refers to a situation when there are more sellers than buyers on the market, which leads to lower prices due to the excess of supply over demand. This term does not refer to hordes of “buyers” breaking stores’ windows and grabbing whatever they want, should the store set prices that the “buyers” do not find agreeable.

Forcing new business models is the same as attempting to force democracy upon Iran. Even if this latter works, which I do not believe is possible, there will still be thousands of people who will honestly think that the Western world ruined a great country, broke its spirit to replace it with a world of greed, evil and vice. Just as thousands of Russians still believe that attempts of Western democracies to educate Soviet people about freedoms were the cause of despicable economic state of Russia in the 1990s when oil prices plummeted. Many Russians still believe (which feeling is successfully being exploited by the government) that the only “real” objective of whatever (literally, every single thing) the West has been doing is to bring Russia down to its knees.

Soviet Union should have been allowed to fail and through its complete failure, seen from the inside, and not only from the outside, to adopt a new model that works2.. Otherwise, as soon as oil prices went up, new Russian leaders began rebuilding the old system claiming that the only reason why the Soviet Union experienced “temporary problems” was because of the forceful imposition of an extraneous ideology. Attempts to save someone who does not realize that they need to be saved or even someone who knowingly resists such “salvation”, will never succeed. For the same reason, refusal of the West to let the Soviet Union rot and fail, allowed the bankrupt socialist and communist ideas to outlive their most successful practical embodiment, because those who support these ideas now have an argument that these ideas failed because of the intervention on pernicious free market ideology. It has always been the tool of collectivists and statists to blame their victim (free, laissez-faire capitalism) for their own misdoings and then offer the same poison they used to bring about the problem they were trying to “fix” as a remedy.

Proponents of “copyright to the masses” ideas keep going back to the same examples over and over and over again, the most popular being one of the movie industry’s war against the VCR, claiming that in the end of the day, it was the VCRs that saved the movie industry3.. The question is – did the movie industry need to be saved? Did the manufacturers of VCRs have an obligation to save Hollywood?

If advocates of the use of VCRs were so confident in superiority of their business model, they should have created a case where VCRs were primarily (or, ideally, exclusively) used for Content provided by those Owners who agreed to having their Content so used. This, however, never happened. “Old” movie industry gave in, had to accept VCRs as part of the new landscape, and immediately went back to its old model, subject to necessary changes. This is because it had never been given a chance to regard the advent of the VCRs as anything but the necessary evil, a chance to truly appreciate numerous features that allowed the industry to benefit from the VCRs after the movie industry lost its battle to VCR manufacturers. Forced adoption of a model that the movie industry tried to resist may have saved the industry, but it never became the industry’s conscious and voluntary decision. And the choice that the industry was facing was not a choice between the old model and the new model. It was a choice between mass disregard of the public to the way the industry wanted to run the business and the new model. It was surrender, not embracing of the new model. If the major element of the “old” industries is described, as William Patry does, as control4., the industries’ surrender to the new model did not dissuade them of the idea that control is a virtue. Being force-fed the new business model and unwilling to see their old model’s flaws, they kept trying to retain as much of their old model as possible. The history kept repeating itself with VCRs, TV, DVDs, the Internet. Instead of letting the industries fail and learn from their failure, the innovators consistently went against the old industries’ wishes and forced new models upon them and kept calling this “salvation of industries running old failed models”.

Yes, maybe if VCR manufacturers would have had to wait before the movie industry realized the potential benefits of the new technology, thus delaying the advent of the VCR. But, assuming that the new model was indeed better, it would have created a completely different landscape of industries embracing the strengths of the new models rather than trying to minimize their impact on the existing models.

Also, one must not forget that VCRs, as any other interface between Content and end-users, only have a meaningful use if there exists Content that they can record or play back. Give a VCR to a caveman in absence of TV broadcasts and other audiovisual Content (even assuming that the caveman will have electricity and a television set), and the VCR will be completely useless, a pile of metal and plastic. It is the Content that gives value to the VCR.

Patry writes:

      “Consumers are king – not control, not copyright, and not content. Without consumers, copyrights and content have no economic value. Copyright is not fairy dust, vesting everything is touches with magical economic value. Rather, economic value is derived from buyers’ willingness to pay for a product or service.”5.

However, this does not address the issue of piracy. If consumers, instead of buying Content, are accessing it in circumvention of the Owners’ terms, it does not mean that the value of the Content is nil. Just like stealing of a car, which essentially means the particular “customer’s” refusal to buy it, does not mean that the car’s value is zero. If it proves anything, then it is that the mere fact that Content gets pirated means that it has value, however, through various mechanisms, looters of sorts6. have an option to override the necessity to pay the price.

As Barry Sookman wrote, addressing critics of the presently negotiated anti-counterfeit agreement, ACTA:

      “I had always thought that a consumer was someone who legitimately acquires some good or service for that person’s own use. However, the “consumers’ referred to by the coalition [of those who oppose ACTA] appear to be those individuals who engage in repeated acts of copyright infringement despite repeated warnings to stop. So, is the moral fight against the substance of ACTA’s proposed provisions related to graduated response by these detractions really about defending the right to take the creative labour and investments of creative individuals and industries for free?”7.

I share the view of Justice Peterson, who in University of London Press, Limited v. University Tutorial Press, Limited8. wrote: “after all, there remains the rough practical test that what is worth copying is prima facie worth protecting”. If it is worth someone’s efforts to steal, it has a value, even if no one buys it.

Crusaders should not expect to be embraced and to have their views that they attempt to forcefully impose on their victims, celebrated. Unless the sole interest of new model missionaries is in the mere sadistic process of forceful imposition of their ideas unto those who resist them, there are only two interrelated ways to efficiently reach the objective of conversion: to let the “old” models fail without any external pressure, simply by allowing them to rot by themselves, unable to provide something useful enough to keep them afloat9.; and to recruit new adepts by demonstrating the superiority of new models, without any violation of terms established by those who prefer to keep running the old models. This is the only way to have a controlled experiment, the only way to objectively prove that one system is better than the other.

Let us compare this situation with a restaurant that charges exorbitant amounts for its good food, but has less and less customers because of its conservative and somewhat extravagant policies. For example, it only allows men in blue suits and red ties and it only allows women wearing white dresses and red high heel shoes, and requires them to dance before they are permitted to enter the premises. But the food is great. And very expensive. Let us assume that most people find this approach ridiculously preposterous, that the business model of the restaurant owners is wrong and disastrous. Let us assume that it indeed is wrong and disastrous.

By analogy, what the proponents of forced new business models would suggest is to have as many people come to the restaurant, without regard to the limitations to the dress-code that the owners are trying to impose, eat and refuse to pay, claiming that the restaurant owner’s policies are unfair, inconsistent, discriminating, unenforceable, irrational and immoral. This approach is clearly wrong and will never convince the restaurant owner of anything other than he is being assaulted by a lawless gang.

The reason why Montgomery Bus Boycott was so successful during the segregation was that the protest did not involve violation of anyone’s individual rights. Black people did not force a free bus ride under the pretence of fighting against segregation, they boycotted the public transportation, which resulted in serious economic consequences for the public transport system. Feel the difference.

There are several other ways to prove the point, assuming that we are right.

The easiest would be to campaign that people not go to that restaurant. Yes, refuse to eat there – at all, for free or for money. In case of copyright this means – don’t buy and don’t use Content unless it is legally offered to you under conditions you find acceptable. No one has an inherent right to use someone else's works. Just as “public property” and “public interest” are misnomers referring to notions that do not exist, there is no such thing as “users' rights”10..

Another solution is – convince the chef to leave the place and work for you. It is the chef who makes good food, not the restaurant owner. Restaurant owner simply provides a business model, the interface, that we find unfair. If our model is so much better, it should not be a problem to convince the cook to work for us, should it? The cook here, of course, is the Creator. Instead of pouting that the lion’s share of the profits goes past the Creator and instead of sabotaging the business of those whose business models we do not like, convince the Creator that they will be better off under our modernized model. Without a good cook, how is the restaurant to survive? And if we have a great cook and a superior business model, is it not the key to success?

Yet another solution is – buy the restaurant off from its current owners. If we are so sure that our model is better, that the cook is going to stay with us, that we are going to have so much more customers if we change the model and that we are still going to be able to make more money, why don’t we buy the restaurant off?

If someone invents a miraculous vaccine that most people are reluctant to use for some reason, even if the inventor knows for a fact that the yet untested vaccine will “make the world a better place”, he has no right to forcefully inject it to people who do not want to use it. Even if the only reason why the inventor is doing it is that he is trying to save people’s lives, he is still violating their right to refuse treatment. Instead of finding several hopelessly ill who would happily agree to take the treatment and thus convince everyone that the vaccine works, forceful injection destroys any possibility of a controlled experiment, because “patients” are going to resist treatment.

We do not need to save businesses with old business models. If they are bound to fail, we must let them fail. It is their right to be able to fail. We must not forcefully save them by breaking the laws in the hope that they will somehow adopt a new business model and be grateful to us till the end of their days.


1. World’s Most Outrageously Expensive Car

2. One of my favourite quotes is from “Back to the Future I”, where Doc Brown exclaims: “Ha-Ha! I finally invented something that works!”

3. William Patry, Moral Panics and the Copyright Wars (Oxford: Oxford University Press, 2009), at 158.

4. Ibid., at 26.

5. Ibid., at xx.

6. Here I refer to anybody who uses Content in circumvention of limitations prescribed by applicable laws or by the Owner. This includes uses which are legal (for example, those excepted under fair use or fair dealing doctrines, or otherwise) but which go against the will of the Owner, even if such will is based on nothing but the Owner’s whim.

7. Barry Sookman, A reply to ACTA critics

8. University of London Press, Limited v. University Tutorial Press, Limited, [1916] 2 Ch. 601 (Ch.).

9. This has been demonstrated in Ayn Rand’s “Atlas Shrugged”, where people of achievement who vowed to live by the principle “I swear by my life and my love of it that I will never live for the sake of another man nor ask another man to live for mine.” had refused to serve the looting society, set off to establish their own secluded settlement, and allowed the remaining population to see what looters’ life becomes when there is nothing left to loot on.

10. See my previous article, Copyright and the Great Socialist Degradation

Categories:Intellectual Property:Intellectual PropertyCopyright
 Values:Individual RightsPassionIntegrity
Additional Tags:CollectivismPhilosophy
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