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October 18, 2002

The Economics of Elvis reredux


You ask what direction would I like to see copyright law take as we move further into the age of perfect and easy replication?

Based on what I learned writing my posting, “The Economics of Elvis,” I’m not so sure copyright law should take much of a direction at all. When a new copyright law is passed, it’s always justified as an attempt to protect the property rights of innovative people from some current threat (whether mechanical reproduction in 1909 or digital piracy in 2002). Once this “hole” in intellectual property rights is patched, things will work “like everyone knows they should.” But intellectual property is subject to the law of unintended consequences big time. What has commonly happened is that once the lawmakers have applied their backward looking "patch," we discover that they've gone and created entirely new property rights, often in industries undreamt-of when the law was passed. For example, was it really a matter of course that songwriters (or, in reality, their corporate successors) should own the radio rights to their songs? How about television rights? Did anyone know how much money would be involved in either the radio or the television rights when the bill that granted these rights was debated—in 1897? Of course not; the congressmen of 1897 felt bad for songwriters because they couldn't charge royalties for performance of their music, a power that dramatists had enjoyed for performances of their plays for 50 years. But this decision had a whole series of unforeseen impacts that extend to this day.

Another troubling consequence of the creation of such expanded intellectual property rights is impact this has on the creative "temperature" of an industry. Corporations are money-making entities, not creative entities. They are not in business for the joy of innovation or the joy of making “art.” A portfolio of intellectual property of demonstrated popularity that can be risklessly exploited offers the illusion of security in a notoriously unpredictable environment. (For one example, think of the profits the current generation of Disney managers has extracted from their control of Walt Disney's portfolio of intellectual property.) This path, however, leads directly away from the risk taking and experimentation of trying to develop products for new, poorly defined markets. Unproven markets will always be inherently dicey for large companies, because it is genuinely unlikely that such markets can generate enough sales to provide a good return on the organization’s large amounts of invested capital. The net result is a conservative, play-it-safe tendency to pursue strategies that have yielded mass sales and large profits in the past, and that, if possible, don’t make existing inventory “obsolete.” While apparently rational, such a strategy will also generally fail to flush out the new, urgent wants/needs in society that can serve as the basis for a radically enlarged market. In my piece I used the example of music industry’s failure to identify and exploit the demand for “race” music for twenty years, and for “hillbilly” music for fifteen years—because the industry had convinced itself (with help from ASCAP) that “everyone knew” what music the mass audience really wanted to hear (i.e., same as last year) and ASCAP's writers could deliver it (because they had before.) Of course, when race and hillbilly music finally broke through this logjam via the less capitalized, less risk adverse independent labels and radio stations, it hugely enlarged the overall market. In short, an industry which is constantly trying new formulas and approaches will probably not be obsessed with intellectual property rights--and one that is highly obsessed with intellectual property rights will probably be creative only in a very narrow range. (I don't think it's unfair to say this situation is pretty observable in the entertainment media of today, with a static audience size for movies and declining CD sales for music.)

For both these reasons, I think there are strong arguments for making changes in copyright law (no matter how urgent they seem) as slow and incremental as possible.



P.S. I keep reading discussions that suggest that many of the same issues are arising in technology industries over patent law practices. Intellectual property legislation should be labelled "handle with care."

posted by Friedrich at October 18, 2002


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