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Monthly Archives: September 2009

How Lily Allen showed copyright affects more than just artists

Musicians in the U.K. have been staking out positions for and against a proposed 3-strikes law where after 3-strikes, file-sharers of copyrighted material would be banned from the internet. Lily Allen (a personal favorite of mine) launched a blog in support of the 3-strikes law, but resulted more in a lesson to strong copyright supporters that no longer is copyright just an issue for those creating content.

To summarize the more than week long back-and-forth, Lily Allen began her blog, It’s Not Alright, a few weeks ago arguing file-sharing was stealing and hurting new artists writing “File sharing eats away at opportunity for new artists: by cutting off income at the most crucial, cash-strapped point in their careers and by limiting A&R’s ability to sign new acts outside of the mainstream.”

Allen’s blog quickly gathered a large community of copyleft and copyrighters debating Allen’s arguments and the merits of the laws she endorsed. TorrentFreak pointed out Allen copied an entire post from (another personal favorite) Techdirt without citation or a link. Techdirt’s Michael Masnick explained he didn’t care about the copying, but pointed to how hypocritical Allen’s was being.

A few days later it was revealed that Allen, while a new musician herself, released mixtapes online of her and other artists’ music, music which she did not have the copyright to. These mixtapes were still available on her website – entire songs. Allen defended this as her not understanding copyright law when she made them and that the songs were just excerpts.

Hundred of people commented on her blog and many bloggers posed questions for Allen to justify her position on file-sharing while she herself had no problem copying blog posts and file-sharing songs herself. Further, she used free services like Blogger, MySpace, and Twitter to share her music and connect with fans, turning her from a new artist to a famous artist. And she didn’t respond to questions from Masnick and others asking how Allen balanced her belief that file-sharing was harming music when the U.K.’s music industry’s own study showed the music industry was growing.

Allen discontinued her blog claiming Masnick and other copylefters were bullying and attacking her (one person said Masnick of “leading” his “internet army” to attack her while being angry.

But all this really teaches us that copyright affects more than just musicians. There is a growing fervor among consumers that copyright and the content industry are expanding too far onto individuals and their civil rights. Recording companies keep increasing the penalties for file-sharing, yet file-sharing keeps growing because that’s what technology and the market demands. No amount of government intervention will force people to buy CDs again.

Because Allen stopped blogging and has ended her career does not mean copyright isn’t working. The music industry in the U.K. has significantly grown as technology has made it easier and cheaper to make and share music. Allen herself took advantage of these free and cheap tools to make herself famous, and only when famous does she change her tune (see what I did there) on copyright. While I’ll be very sad to not have any more of her music, there are thousands of new artists eager for space on my iPod.

Universities: Greatest U.S. resource undergoing radical shift – Part 2

Today I continue my feature on universities, crediting them as a key part of the United States’ economic future. But that future will likely look different from the present.

As we are seeing the price of information plummeting for news organizations, information from universities is seeing a similar albeit slower disruption to their century’s old business model.

Higher education costs have skyrocketed over the past few decades, jumping almost 10-fold since 1978, far more than the 3-fold increase in cost of living and the 6-fold increase in the cost of healthcare. What’s more surprising in recent years is technology is pushing the cost of providing education down while the costs of receive the education continue to skyrocket.

The Washington Post published a analysis of the business model turmoil in store for universities. Online universities still possess a stigma of being inferior to brick-and-mortar colleges, but as more and more students attend, that stigma will decrease (see online dating or online retail).

Thus far online courses have remained as expensive as their terrestrial counterparts, sometimes more expensive with additional “technology fees” added on even though these classes cost a tiny amount to offer. But a new company profiled by the article called StraigherLine aims to toss the higher education model for a whirl.  The company offers all-you-can-study for $99. If you can take four classes in two months like a woman did, it will only cost you $200 compared to thousands upon thousands for the same education at a regular university.

This is not good or bad – it is basic economics. Just like the newspaper or music industry, technology is making it cheaper and easier to spread and share information. Professors and experts are offering open source, free, or cheap textbooks online in addition to blogs and interactive teaching materials that work in and outside of the classroom. Collaboration tools allow students and teachers to be fully engaged even without being in the same room or even state, saving money and time.

Universities (and certainly textbook publishers) have been timid to adapt amid growing demand for cheaper education. While several universities offer free online courses, these are not for actual credit. Other universities that offer online courses in addition to their regular offerings do so with similar or more expensive pricing (the technology fee). But these classes cost the university less and can lead to more, not less, efficiency. There is no limit to the student space and professors have more time to respond to student’s questions, allowing for more students and more questions. These online courses can easily handle introductory classes or  even small writing seminars (just email other students your essays) and in-person classes can focus on more complex, discussion or debate heavy classes (as wonderful as Twitter and Skype are, a rousing round table is still best in person).

Top universities offer something more than knowledge. Much of their value comes from reputation and the quality of their student body, a key scarce good that allows them to now and for a long time charge a premium for their service.  State and middle-tier schools face the most threat as competition from online universities convince more and more students (and employers) that their education is as good but significantly less costly. And as society requires more and more students to complete higher education degrees, the need for affordable education will become more in demand – and more affordable because of the greater supply.

Universities: Greatest U.S. resource undergoing radical shift – Part 1

All the manufacturing jobs leave the U.S. for China, India, South America, and eventually Africa, the U.S. will face more economic competition for both products and minds. To remain and be a knowledge leader throughout the next century, the U.S. has one massive industry that cannot be easily copied – universities.

Higher education in the U.S. is unmatched by any country. U.S. universities dominate international rankings. Shanghai Jiao Tong University awards the U.S. with 54 spots on the top 100 with the U.K. trailing with 11, Germany at 6, and downward. Many of our universities are famous and respected because of centuries of history and the prestige and connections that provides, something not easily replicated by young yet also top schools in India, China, and other emerging powers.

First, I bringing this up as, amid the global recession, universities are at risk. California is slashing university funding and endowments at Harvard and other universities have seen 27 percent losses. Also most threatening is the drop in foreign applications to U.S. universities, the first drop in five years (when the last drop had more to do with 9/11 than economics). Prices for U.S. universities have skyrockets, more than three times more than inflation, while the government makes attaining visas even harder.

But we should want foreign students coming to study in the U.S. This encourages the next generation of business leaders, scientists, and artists to spend four or more years in the U.S., spending money, learning our culture (and selfishly, learning English), and then hopefully staying to work here or, at least, doing business with us.

This is why limiting H-1B visas is so dangerous for the U.S. economy. One out of four tech companies are founded by immigrants who then create far more jobs than they take away. Even without starting companies, our current tech companies cannot fill all the high-tech jobs they need, but are limited to only a few foreign hirers. Instead, these highly trained and would-be highly paid immigrants return to their native countries to start companies there.

Monday, I will discuss how universities structure, from price to format, is undergoing a radical shift that requires forward-thinking and evolution.

Technology doesn’t make people obsolete; it changes what we do

Hank Williams, author of the blog Why Does Everything Suck, has a cynical view of the recent economic crash claiming that it has more to do with technology making people and their jobs obsolete. But the numbers, and some history, show this to be completely untrue.

Williams writes:

The problem is that we are in this awful in-between phase of our planets productivity curve. Technology has vastly reduced the number of workers and resources that are required to make what the planet needs. This means that a small number of people, the people in control of the creation of goods, get the benefit of the increased productivity. When we get to the end of this curve and everyone can, in essence, be their own manufacturer, things will be good again. But until we can ride this curve to its natural stopping point, there will be much suffering, as the jobs that technology kills are not replaced.

The fact is technology, throughout history, has increased the number of jobs, not diminished them. Further, the new jobs created are often higher paying jobs.  ATMs, for instance, do away with bank tellers, but then we need people to make and maintain the ATMs.

I wrote about this trade off several months ago. I linked to a Slate article listing the dozens of industries put out of business by new technology over the last century. Yet instead of declining jobs and growth, the  last century has been one of prosperity.

Technology helps make us a more efficient society, allowing fewer people to do one task and devote time to another. The U.S. used to employ the vast majority of its citizens in food production, but now less than one percent of our GDP comes from agriculture yet we produce more food than before. All those people once focused on growing and harvesting food went on to build new industries like movies, air transportation, computers, and the internet.

Speaking of the internet, how did that Dot Com Boom go? A massive increase in job creation in an all new industry not seen before. Yes there was a crash, millions of jobs lost. And you know what? We recovered and built sustainable jobs in that same all new industry.

Of course, it would help if Williams looked at where the jobs are actually being lost.  The financial industry hasn’t lost more than 300,000 jobs because of better technology, but rather unregulated greed, corruption, and bad investments. The mortgage and construction industries have lots hundreds and thousands of jobs because of more than a decade of over investment and now a large drop in people not wanted to buy new houses.

The jobs lost are not just low-skilled or low-income jobs. This economic crash is the result of many, many issues including many industries not adapting to new technology rather than simply being made obsolete (see the auto and newspaper industries). After the end of this recession, the U.S. and most other countries will have reprioritized their resources, both in terms of dollars and labor. Maybe more people will be available to research and build a massive green technology industry. How about turning stem-cells into a viable business? What haven’t I thought of? Who would have thought 10 years ago that writing 140 characters would be a billion dollar business? By removing some jobs, we free up resources, both people and dollars, to do more in other places.

What auctions have taught me about infinite goods and the price of free

I began working at Leslie Hindman Auctioneers a few months ago (hence my sparse blogging) and have watched basic economics at work. Two or more people bid against each other, offering more and more money until no one is willing to spend more. In traditional commerce, the goal is not to sell to the highest bidder, but set your price to attract the largest number of buyers. This is the difference between value and price. Value equals what each person is willing to pay while price is what the actual cost is.  A few months ago, I wrote about customers, or individuals, can be wrong in the marketplace, but as a whole, the market is always right.  The market is a greater indicator of what’s valuable and for how much. Auctions are a microcosm of these market effects. In auctions, we get to see how value, price, and markets can work for and sometimes against each other within very small sets.

Within our capitalist society, our goal is to make money.  For many, this means selling goods. So in any auction, the goal is to sell each good, or lot, for the largest amount of money.

Let me walk you through an auction example where I explain how value and price differ. I really want a painting.  Another person, Jack, also wants this same painting. I am willing to spend $15,000 maximum on this painting, meaning, I value this painting up to $15,000. Jack is only willing to spend $10,000, meaning he values the painting at up to $10,000. We both bid on the painting until Jack bids $10,000. I bid $11,000. Jack only values the painting up to $10,000, so anything higher would be a perceived loss for him. The price is too high compared to the perceived value he receives. I buy the painting for the price of $11,000, $4,000 less than my perceived value.  This is a net gain for me because the price was lower than my perceived value. The painter owner still gets $11,000, the auction house gets its commission, and I get a painting I really wanted. Everyone wins, even Jack who keeps his $10,000 to spend on something else. Because the painting sold for more than he valued it at, he did not loose anything, whereas had he spent more than his maximum, he might have felt like he lost something.

Now some may not agree this was a win-win-win-win. Because I was willing to pay $4,000 more, the owner and auction house lost out on more money. But according to auction (and marketplace) rules, I only have to pay more than the last bidder. So if I were asked to then pay more than the $11,000, I might feel cheated or like I lost something because the market, comprised of Jack and me, deemed the painting should be priced at $11,000.

This is where auctions show the ignorance of the individual and the wisdom of the market. People selling their goods through the auction house, called consigners, can place reserves on their goods. Reserves are the minimum price a consigner is willing to sell the good for. If the auction price is less than the reserve, the item goes unsold. Auction houses often provide low and high estimates appraising the value of the good and the reserve cannot be higher than the low estimate.

So let’s apply a reserve to my previous example. Let’s say the consigner has a $15,000 reserve on the painting.  This is the consigner placing a price on their good based on what they believe other people’s perceived value will be. This is why problems in commerce occur – when the seller and the buyer’s views of value fail to meet.

But I was willing to pay $15,000, you say. True, but that was based on the understanding that someone else was willing to pay $14,000. Because I now understand what the market values the painting at, $11,000, I may change my own perceived value of the good. Think of it as competition pushing the price (not value) down, because I know no one will pay more than $11,000.

So the auction house may try to arrange a private sale between myself and the consigner where I may raise the payment price and the consigner may lower their reserve – the price they are willing to sell for.  If the consigner sticks with $15,000 and I am unwilling to pay it, we both lose. I don’t get the painting, and they get no money. Maybe they’ll make more at a later date, but they might also make less. During that time, I might buy another painting and no longer want this one.

How can we apply this to the price of free and all the industries challenged by it? First, the price of free is not representative of value as so many content producers confuse. The painting, and many auction items, are sought after because of scarcity and unique qualities that give them high value. Since buyers cannot find this same value in other goods, they are willing to spend money to buy the goods. Newspapers, music, and entertainment programs are no similarly scarce and unique, rather, they are quite ubiquitous and easy to find. If I can watch one TV, I have 500 other channels to pick from, plus on demand, plus online sources, play other media like video games to spend my time.

Auctions, as I said, are a microcosm where only two people are needed to bid up the price of a good. This is attributed to the aforementioned scarcity of the goods – if you only have one or two to sell, you only need one or two buyers. For general consumer goods, auctions would not be effective since companies need to sell hundreds if not millions to meet their desired profit goals. So companies have to balance price with their assumption of the market’s average perceived value of their product in order to sell the largest of number of goods at the highest possible price.

As we are seeing, many industries are setting higher reserves on their goods than the market is willing to pay. Music companies want licensing fees so high that TV shows can’t be released; gene patent holders charge to much for researchers to license. Movie companies are trying to force more money from Redbox and newspapers think consumers will give up free blogs to pay for online news.  All these industries ignore what the market is saying, instead trying to say they are smarter or more attune to the value of their own products. But value is not about what it cost to make or how much time was spent making it. Value only matters for how much people are willing to pay. If consumers are not willing to pay anything, then no amount of government intervention or PR manipulation will change that. The market wants what the market wants and the market is still always right. Instead of fighting the market, recognize their wisdom and find a way to make money in the new market. It’s a lot easier, cheaper, and more profitable than trying to change how the market, and basic economics, works.

Experiencing technical difficulties

Prodigeek has been experiencing lots of missing urls and server errors over the past few days (few weeks, but everything I fix seems to lead to a worse problem). Traffic has dropped about 98%, so hi to the 2 people still finding their way. I’m working full-time, moving apartments, and trying to freelance, but I am working with my host to get Prodigeek back up to full capacity.

And if anyone is a WordPress or htaccess expert, please email me (mcs@mikecs.net).

Thank you for your patience.

Stop listening to Internet Service Providers who provide bad internet

I still find it surprising that often the people who create problems are asked to then fix them. And I’m not talking about the financial crisis. Broadband internet in the U.S. significantly lags behind many countries with slower and more expensive internet connections.  The Organization for Economic Co-operation and Development found the U.S. ranks 19th in the world with advertised rates of 9.6 megabytes per second, far behind Japan’s 92.8 mbps, Korea’s 80.8 mbps, and France’s 51 mbps.

If the U.S. had real competition for internet access, we would likely have faster speeds and more ubiquitous access (a shared infrastructure like we have for telephones and power lines would be an excellent start), but instead of promoting competition, the government continues to listen to and reward the incumbent with free money and laws that only keep our internet slow and expensive.

First, the FCC is listening to ISPs urging the government to define broadband at significantly lower speeds than the lower speeds we already have. Both Verizon and Comcast suggested speeds of than a single mbps. These numbers matter, since the $7.2 billion from the stimulus package is meant for broadband speeds.

Of course, expanding broadband is also important than just increasing speeds, but we lack any real map of what parts of the country have and don’t have broadband access.  The FCC for years used knowingly faulty data to claim there was competition between ISPs. Of course, the ISPs keep these maps secrets, making it more crazy that the government would look to the telecommunication industry’s own organization, Connected Nation, to map the nation broadband infrastructure.  Lots of questions are facing Florida for why it granted its mapping to the new and unproven group, when its bid was more than double that of the highly experienced (in the Florida market even) second highest bidder.

ISPs claim customers don’t want or need these faster speeds, but at the same time, ISPs are arguing that they need to traffic shape or even charge more because users are using so much bandwidth. The truth is 18 other countries are still paying less for much faster service; service that is available in more households and more areas of the country.  These countries will be more competitive at attracting technology companies who want to offer more bandwidth intensive products, like high-def videos and gaming, to other products we can’t yet imagine. How could YouTube have existed before broadband?  Let’s start planning for the future. The U.S. needs to stay technological competitive, and listening to the companies that made us fall behind are not the ones to trust when thinking about how to fix it.