Dan Ariely's Proposal for Reducing Piracy

Behavorial economics is the study of how psychology affects people's behavior in economic situations, and Dan Ariely is one of the discipline's susperstars.

Three days after releasing his new book, The Honest Truth about Dishonesty, he discovered it had already been illegally downloaded over 20,000 times. Being a scientist, his primary response was curiousity as to why people steal intellectual property.

He describes his process of understanding in this blog post:

My first insight came with a personal conversion. Before it was my book being illegally downloaded, I was more on the “Information wants to be free” end of the spectrum. The sudden, though predictable, shift in my feelings when I found my own work being downloaded for free was a jarring experience. Maybe Information finds complete freedom too threatening, I thought, and maybe it would rather be a bit more protected. It was a very clear example of how my own views of morality are biased – as are everybody’s — based on our immediate perspective.

Somehow I don't find it hard to believe that the more time, money, and effort you've spent on your album, the less likely you'd support giving it away for free.

He continues with another gem:

Once people start seeing a particular behavior—such as illegally downloading books, music, and movies—as a very common behavior, there is a chance that this sense of social proof will translate into a new understanding of what is right and wrong. Sometimes such social shifts might be desirable—for instance, being part of an interracial couple used to be considered illegal and immoral, but now we see such couples all around us and it helps shape our understanding of social approval. However, the behaviors we most often observe and notice are ones that are outside of the legitimate domain (e.g., doping in sports, infidelity by politicians, exaggerated resumes by CEOs) and in these cases the social proof can change things for the worse.

In other words, piracy is the new speeding on the highway.

So how does he propose we attempt to solve this sticky problem?

He suspects it's about confession:

How can we stop such trends toward dishonesty (in this case, broader acceptance of illegal downloading)? The problem is that if someone has acquired 97% of their music illegally, why would they legally buy the next 1%?  Would they do it in order to be 4% legal?  It turns out that we view ourselves categorically as either good or bad, and moving from being 3% legal to being 4% legal is not a very compelling motivation.  This is where confession and amnesty can come into play.

What we find in our experiments is that once we start thinking of ourselves as polluted, there is not much incentive to behave well, and the trip down the slippery slope is likely.  This is the bad news.  The good news is that in such cases, confession, where we articulate what we have done wrong, is an incredibly effective mechanism for resetting our moral compass.  Importing this religious practice into civic life was effective in the Truth and Reconciliation Act in South Africa, where acknowledging the many abuses and violations of the apartheid government allowed the South Africans to forgive past sins, and start fresh.

While I applaud new ideas of anti-piracy that aren't "sue them into oblivion", I do see a few potential snags this method.

First, if there's not enough political capital to push through complete amnestry for those who admit to piracy, the actual policy that would pass could become a "temporary stay of prosecution" instead of full forgiveness. For example, Obama's pledge to not deport young immigrants for two years was described by Homeland Security Secretary Janet Napolitano as "It is not immunity; it is not amnesty. It is an exercise of discretion."

A reversable immunity is a worthless immunity.

Second, this method would require pirates to register their personal information in a database. Given how closely piracy advocates align with privacy advocates, this will be a very tough sell. If you were a regular offender, would you want your name on an offical list?

As always, I must note that I DO NOT SUPPORT PIRACY. But, given that piracy has become the new speeding on the highway, I write to help your band understand how to live in the new music industry.

Adapt.

Link: Is Stealing Music Really the Problem?

Jay Frank lays down some serious knowledge:

Despite the economic number that David Lowery quoted of the number of professional musicians falling by 25%, if you took “album releases” as an indicator, it seems like the number of pros has increased. In a decade, we’ve gone from about 30,000 albums being released to over 77,000 last year. And that’s just albums going thru legit channels. The problem, as noted by Chris Muratore of Nielsen on the previously noted New Music Seminar panel, is that 94% of those releases sold less than 1,000 units. Indicators that I have examined showed those low sales aren’t because of people stealing them. They come from too many releases causing most people to not even realize they are out.

For example, 80s rocker Lita Ford has a new album that came out yesterday. As of this writing, it’s the 91st most popular new release on Rdio. How many of you have the patience or time to sift thru the other 90 releases to get to #91? Let alone decide to even put in the effort to steal it? Whether you were going to listen to it or not, I’d be willing to bet that almost everyone reading this found out that Lita Ford had new music from this paragraph. Stealing it is even further down their priority list.

....

So while all these independent artists argue thievery, do you know who’s winning? Major labels. This week, of the top 100 tracks on Spotify, only 6% are on independent labels. Major labels have figured out that the game is about exposure and awareness, two things that they are actually quite good at. It’s not about royalty rates, thievery, or even quality of music. It’s all about how I get people to know I exist. Major labels aren’t ignoring file traders, but they have moved past how much of their day they concern themselves with it. Instead, they focus on putting energy behind making music that the public wants and marketing the shit out of it so it rises above everyone else. While you’ve spent the last few years claiming the major labels are “dinosaurs” who are going to be “out of business”, they’ve actually become stronger behemoths who are more progressive than you realize.

Definitely worth the read.

Piracy Still Isn't Going Anywhere

Emily White, an intern at NPR, wrote the article "I Never Owned Any Music to Begin With", explaining she has 11,000+ songs in her iTunes library by has only paid for 15 CDs in her life. While she states that seh supports bands through concert tickets and t-shirts, she admits that her generation probably won't be buying

This triggered a thoughtful, well-written post from David Lowery at The Trichordist. In it, he talks about the heavy burden that artist friends of his had to bear due to financial hardship, eventually leading to their suicides. Wow, heavy stuff.

He then goes on to clearly explain the immorality of piracy quite well, although the extended metaphor for the internet as a neighborhood that is built around theft fell a little flat with me.

While I agree that piracy is immoral. I don't think the morality angle will make much of a dent in people's behavior. It's preaching to the choir. Saying something is immoral doesn't make people any less likely to do it, especially if the systematic structures in place make it easier to be immoral than moral. 

For many people, piracy doesn't feel like a crime and so their moral intuition doesn't interpret the behavior that way. The band doesn't have "less MP3s" to parcel out to fans, so it's simple for someone to rationalize "It's only a couple cents the band isn't getting."  Even when we know with certainty that driving above the speed limit increases traffic deaths, virtually everyone speeds at least a little. "Because come on!", people rationalize, "I'm just going a few over and I'm already late for the concert!"

Think about how much easier to click "download all" than it is to:
   -Decide how much you actually want to hear the band.
   -Look at your music budget and determine if you've got the $9.99 for the album.
   -Weigh the moral implications of how much the download hurts the band / label.

Most people won't spend too much time on a band. There's an infinite number of songs to listen to on the internet and a casual fan won't spend too long with one before moving on to find a band that better connects with them. Only medium to strong fans will go through the purchase process.
Yes, it's a bummer.

But piracy isn't going anywhere.

The icecaps have already melted on planet music.

Adapt to the new planet or fail.

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I DO NOT CONDONE PIRACY. I AM ONLY EXPLAINING WHY THINGS ARE THE WAY THEY ARE.
***

Piracy Will Never Go Away

Piracy will never go away.

The sooner we accept this, the better off we'll be.

File-sharing methods are developed by those on the bleeding edge of technology. Those who would legislate file-sharing are just discovering text messages. Until politicans stay up until 3am every night buried face-down in code, the pirates will continue to be in the lead. Lockpickers rejoyce at the release of a new "unpickable" lock. Woohoo, a new puzzle! It's the Red Queen from through the looking glass; everyone has to keep running just to stay in the same place.

First, let's get this straight: I do not condone piracy. Artists create beauty and should be compensated for their work. Period.

But piracy is an economic reality. Neil Young goes as far as to say "Piracy is the new radio." We can either learn to leverage this for our gain to build our fanbase or we can thrash helplessly against the relentless tide and hurt paying customers with DRM. The only way to stop piracy would be total draconian lockdowns on freedom of all information which would hurt both consumers and content creators.

Even now, the systems in place to protect content are only for the benefit labels big enough to afford lobbyists. Universal has been using YouTube's Content ID system to issue takedown notices for copyright infringment on crochet lesson videos without music and shutting down youtube channels for unaffiliated independent bands.  Independant artists, however, are unable to use the same system to protect their own works.

 Zoe Keating:

"I actually signed up for Content ID to track all the videos that ALREADY have my music in them. For a very brief window when my account became active (2 days) I was able to use the Content Management interface to search for and claim the audio of videos. I managed to claim the audio for about 20 videos before that feature was disabled on my account. I was told that claiming videos is not a feature that is supposed to be active for sound recording copyright holders and it was a "bug" that I was allowed to do it." 

The landscape of the music industry have irrevocably changed. The old school method of paying $1,000,000 to generate a hit single is being undercut by increased customer choices for music and dratmatically reduced fixed costs.

Remember how the Motion Picture Association of America reacted to the invention of the VCR?

"I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home along." - Jack Valenti, MPAA Cheif.

As much as it hurt the typewriter industry, the development of word processors was a net posititve for society. (Can I get an amen for splecheck spellcheck?) Technology marches on, whether you like it or not.

Piracy will never go away.

The sooner we accept this, the better off we'll be.

The tech industry's solution is software-as-service, where users pay a monthly subscription fee to use this software through the web. Customers love it because you don't ever have to deal with technical crap and you can get to your data though any computer / tabelt / mobile. Businesses love it because it's reliable, costs nothing to distribute to more customers, and provides a stable monthly income stream. (Great blog post by Patrick at Kalzumeus software on why he's giving up desktop applications for web applications.)

The solution for the music industry is streaming, where users pay a monthly subscription fee to listen to anything, anytime. (Here's my strategy for streaming.)

Streaming is new and still getting the kinks worked out, but now that the services exists, they're not going away. Music streaming services may become the next equivalent to Cable TV.

David Lefsetz elaborates:

Do you think you’re paying when you watch sports on ESPN? YOU ARE! Approximately five bucks a month, whether you watch it or not. The key is to make music listening feel free, even if it’s not. We’re on that road, but too many musicians want to kill it, because it’s a nascent business. It’s like killing the iPod because it didn’t work on Windows and there was no iTunes Store. It’s like doubling down on Kodak because you don’t own a digital camera and who’d want to shoot pictures each and every day other than a professional?

We finally have the tool for success, the way out, streaming services, but you want to kill them. You’d probably eat a cookie today rather than forgo it and have twenty tomorrow.

Killing piracy kills the music business. It cuts down on listener experimentation and innovation. Who’s gonna make something that radio won’t play if there’s no free listening and sharing online?

The industry isn't based around getting signed anymore. As DIY musicians, there's no simple formula for success; everyone is figuring it out as they go.  It's not that the goal posts have moved, it's that the goal posts have been taken off the field. The freedom from labels is as liberating as it is scary.

But piracy is an economic reality. We can either learn to leverage this for our gain to build our fanbase or we can thrash helplessly against the relentless tide.

Update: There's a new BitTorrent service called Triblr that is designed to continue functioning even when a BitTorrent tracker is shut down.

"Like many other BitTorrent clients, Tribler has a search box at the top of the application. However, the search results that appear when users type in a keyword don’t come from a central index. Instead, they come directly from other peers." 

"Downloading a torrent is also totally decentralized. When a user clicks on one of the search results, the meta-data is pulled in from another peer and the download starts immediately. Tribler is based on the standard BitTorrent protocol and uses regular BitTorrent trackers to communicate with other peers. But, it can also continue downloading when a central tracker goes down."

So hackers/technologists become craftier in response to crackdowns. No surprise there. Piracy isn't going anywhere, so build your band's business models to accomidate this.

Lessons From Louis CK's MIllion-Dollar DIY Experiment

For those of you who missed it, on December 10th Louis CK released a self-produced, self-financed comedy special for a $5 download on his own website. No restrictions, other than asking you "please don't pirate this."

He made a million dollars in ten days, no middlemen required.

Louis C.K. said he was shocked as he watched the orders come in -- and then began to feel guilty about the amount he'd netted.

"I've never had a million dollars all at once. I grew up pretty poor and I was like, this is not even my money," he said. "This is just a five-dollar impulse that 220,000 people had, and now I have it. And I felt uncomfortable about having that much money."

So Louis C.K. set aside $250,000 to cover the cost of the expenses of producing the special, then doled out another $250,000 in bonuses for his staffers.

He then donated $280,000 to five charities: The Fistula Foundation, The Pablove Foundation, charity: water, Kiva and Green Chimneys.

"I was going to [donate] $100,000, but it's like blackjack -- I just kept dishing it out," he told Fallon.

That leaves $220,000 left over.

"Some of that will pay my rent and will care for my childen [sic]. The rest I will do terrible, horrible things with and none of that is any of your business," Louis C.K. wrote in a statement posted on his website.

He's not the first artist to make a killing without a label, this just serves as more proof that you can make it on your own. Radiohead's In Rainbows made the band more money than they've ever made for a record even though it was a pay-what-you-want record.

1 Direct-to-fan sales mean cheaper products AND more money going to the artists.

For a large company, $1,000,000 is break-even. For a DIY artist, it's a smash hit. Rembember $18 CDs back in the 90s? Each CD you bought from a third party only returned cents to the band.

I don't know about you, but I'd rather keep my first million.

2) Fans will pay for great art from the artists they love.What with all the crap the MPAA and RIAA are throwing about to justify the Protect IP Act and Stop Online Piracy Act, you'd think people will only pay for art when they're forced to.

Nope.

As the video game distribution platform Steam has shown, making legitmate purchase a better experience for consumers opens their wallets.

Piracy is a service problem.

Louis CK allowed you to download and watch his video using any platform you wanted.

He didn't even bother copy-protecting the video.

He didn't have to.

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"I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say 'Fuck you' to this decaying business model." - Thom Yorke

Megaupload Shut Down

Wow. Megaupload, a New Zealand company, was just shut down by US officials for copyright infringement.

Last month, Universal Music Group forced a copyright take down of a music video featuring artists supporting Megaupload. UMG didn't own any of the copyrights, they just took it down because they could.

The UMG-YouTube agreement grants UMG rights to effect the removal of user-posted videos through YouTube’s Content Management System (‘CMS’), based on a number of contractually specified criteria that are not limited to the infringements of copyrights owned or controlled by UMG,” the record label states in its filing.

What that means, in case the preceding paragraph wasn’t clear enough, is that UMG has a private outside-the-DMCA agreement with YouTube that it can take down other people’s content from YouTube even when it doesn’t infringe their copyrights.

Indeed, in UMG’s 18-page filing not once does the company give any reason or even a hint why it had Megaupload’s Mega Song taken down from YouTube. At no point does UMG claim that the video infringed its copyrights and the previous claim, that the video featured one of its artists, is completely absent.

This isn't about protecting you, the artist. It's about protecting a dying business model.

From Seth Godin:

When the world changes... 

It's painful, expensive, time-consuming, stressful and ultimately pointless to work overtime to preserve your dying business model. 

All the lobbying, the lawsuits, the ad campaigns and most of all, the hand-wringing, aren't going to change anything at all. In fact, instead of postponing the outcome you fear, they probably accelerate it. 

The history of media and technology is an endless series of failed rearguard actions as industry leaders attempt to solidify their positions on a bed of quicksand. 

Again and again the winners are individuals and organizations that spot opportunities in the next thing, as opposed to those that would demonize, marginalize or illegalize (is that a word?) it. Breaking systems that benefit your customers is dumb. Taking money from lobbyists to break those systems is dumber still.

This isn't the first time music companies freaked out.

The industry flipped out about the invention of radio until they (begrudgingly) realized it could actually make them more money. With all we know now about the history of radio, can you look back and think "Wow, radio sure did destroy music!" Of course not, radio drove demand for artists' products. Music is marketing for the artist.

It'll be interesting to see how much longer the old industry will attempt to fight piracy before accepting the fact that the world has changed and deciding to profit from it.

UPDATE:
So more research has turned up the fact that Megaupload offered financial incentives for users to upload stolen music, movie, and warez. This complicates the issue because it means Megaupload was a a whole lot shadier than a simple "file sharing service". While I still see the raid as being a little over the top, there's not doubt that Megaupload wasn't into some shady business.

What Can Music Learn From Video Games?

In an interview at a recent tech conference, Gabe Newell, co-founder of Valve (the video game company behind Half-Life and Portal), gives some fantastic hard data on the economics of sale pricing and freemium models of digitally distribution.

For those of you who aren't gamers, Value has a web service called Steam where you can purchase a game online and have it download directly to your computer instead of having to buy a physical copy of the game. You can download the game any number of times, but you have to be signed in to your account online to play. Simple, unobtrustive DRM (digital rights management) that protects creators but doesn't screw legitimate customers.

Beautiful.

With an estimated 70% of the digital game distribution market, Steam has access to more data than you could ever ask for on pricing and consumer behavior.

And they decided to share some insights with us. Groovy.

From the Geekwire transcript of the talks, Gabe Newell on piracy:

One thing that we have learned is that piracy is not a pricing issue. It’s a service issue. The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates. For example, Russia. You say, oh, we’re going to enter Russia, people say, you’re doomed, they’ll pirate everything in Russia. Russia now outside of Germany is our largest continental European market.

...the people who are telling you that Russians pirate everything are the people who wait six months to localize their product into Russia. … So that, as far as we’re concerned, is asked and answered. It doesn’t take much in terms of providing a better service to make pirates a non-issue.

Pay attention to your customer's wants and needs and they'll pay you for the effort. This business knowledge is far from new, yet it's also ludicriously easy to overlook. Don't do draconian DRM as it'll chase off paying customers and move them to less-hassle piracy.

Software-as-a-service / cloud platforms such as iCloud and Spotify seem to be the way forward as they balance DRM with customer service and price. However, royalties from these sources are small and will remain so for the foreseeable future. Use them as entry-level services for new fans but don't put your entire catalog on them.

Gabe goes on to talk about the company's pricing experiment by making Team Fortress 2 a free-to-play (aka freemium) game:

Why is free and free to play so different? Well then you have to start thinking about how value creation actually occurs, and what it is that people are valuing, and what the statement that something is free to play implies about the future value of the experience that they’re going to have.

And then the conversion rate, when we talk to partners who do free-to-play, a lot of people see about a 2 to 3 percent conversion rate of the people in their audience who actually buy something, and then with Team Fortress 2, which looks more like Arkham Asylum in terms of the user profile and the content, we see about a 20 to 30 percent conversion rate of people who are playing those games who buy something.

So that’s a fairly surprising and fairly recent statistic, which is that there seems to be something about the content that significantly changes how your monetization occurs, with apparently much broader participation than you would see out of something like FarmVille.

They first get the customer interested in the product, then increase the value they offer to the customer as the customer become more commited. Again, it's a simple concept that's simple to forget.

No matter whether your're talking about video games or music, It's all about making it easy to become a fan.

Major Labels Don't Care About Their Artists Or You

Despite what their emotional ads say, the RIAA's attempts to police the internet are not about protecting artists' work; they want only to create a legal structure where they alone benefit. This is about an old business model resisting change.

Remember, record labels are venture capitalists, not patrons.

Pro-Piracy website TorrentFreak describes UMG's campaign to shut down the website MegaUpload:

MegaUpload is currently being portrayed by the MPAA and RIAA as one of the world’s leading rogue sites. But top music stars including P Diddy, Will.i.am, Alicia Keys, Snoop Dogg and Kanye West disagree and are giving the site their full support in a brand new song. 

It's almost as if the artists and labels have different interests, gasp!

Here's the video in question:

Block This from TorrentFreak on Vimeo.

UMG forced YouTube to take down the video. No surprises there.

But wait, there's more!

The video is legally owned by MegaUpload as part of a marketing campaign. 

Wait, so Universal can shut down videos simply because it doesn't like the message? I thought copyright-infringement laws were put into place to help me as an artists?

Would it ruffle your feathers if a major label tried stealing royalties from an independent artist? Does it surprise you that the same people who wrote the SOPA act are entertainment lobbyists?  Are you shocked that the head of the MPAA used the great firewall of China as a shining example for a way to help artists?  (Ai Weiwei would disagree.)

It was never about protecting artists. It's about labels defending their competitive advantage through any means necessary, legal and otherwise.

When an argument rests heavily on an emotional appeal, be very certain you understand who actually benefits from the agreement.

UPDATE:Megaupload sued UMG. UMG reveals that it has an agreement with YouTube that it can issue takedown notices for ANY video without any proof of ownership.

The video is back on YouTube.