You’re still with me? Remarkable. Okay, this is the third installment of my critique of common myths regarding copyright. In the first installment I focused on the canard that copyright stifles artists and that the purchaser of a work is the one with controlling rights. In the second I tackled the myth that copyright stifles innovation and addressed griping about creative industry business models. The series continues below.

5. “In the digital age, the marginal cost of reproduction and distribution of a creative work is zero, so that is the value of the work and should be its cost.”

Sigh. First of all, this argument is rarely made by economists; it is usually made by tech bloggers who double as wannabe economists. I shouldn’t have to point out that even when the marginal cost of reproduction or distribution approaches zero, there are fixed costs that led to that work being produced to begin with. Star-Kist isn’t going to give away tuna fish even if the cannery and the trucking companies and the retail stores all agree to work for free. They still have to catch a whole bunch of tuna.

There’s a larger factor at play here, however. Tuna is, in a way, a commodity, and it with commodity goods where you see prices driven down by marginal cost factors on the tail end of production and distribution. Some will buy Star-Kist, some (like Jessica Simpson) will by Chicken-of-the-Sea, but most just want to buy tuna fish. That’s fine.

But creative works are not commodities. A movie fan is generally not equally satisfied with either “Saw III” or “An Inconvenient Truth.” A music lover will not equally happily download either the Beatles or the Bee Gees as a rule. They may like both, but they are not perfect substitutes, and that is where marginal cost matters. Every creative work has its own market value, based on the value placed on it by consumers, and every creative work has a fixed cost involved in its development. When the creator offers a price that can potentially reimburse fixed costs and a consumer finds that price of value, a transaction occurs. This is called a market. Just because somebody wants something to be free doesn’t mean the creator of that work has an obligation to make it free.

6. “In the digital age, creative works should be part of a collective licensing regime. Everyone would pay a token amount, we could download all of the creative works that we want, and those creators and copyright owners would be paid proportionately from those funds.”

I think everyone should pay a monthly grocery tax based on the number of people in one’s household. Then we could all go to the grocery store whenever we wanted, take as much food as we wanted, and the producers of that food would be paid proportionately from those funds.

Critics of my statement will point out that groceries are finite products and digital reproductions of creative works are not. But the example still highlights some problems with collective licensing, and they all stem from one obvious fact – any collective licensing system takes away the primary right of a producer, the right to decide how his or her work is used.

One, even under a voluntary system, there would essentially be no chance for an alternative market system to thrive; consumers both individual and corporate would already be paying for the collective system, so there is no further incentive to pay beyond that. Every creator and copyright owner would be forced into the system, whether they wanted to enter it or not. Over time, that knowledge might dissuade future creators who would see little incentive to produce something only to see most of their rights to it immediately disappear.

Two, it is not surprising that this model is pushed by those who are the largest consumers of creative works. This is not a platform of the AARP, it is a platform of EFF and other groups supported by young people with a hunger for music and video and often a lack of funds to pay for as much as they’d like. This obviously puts people like my in-laws, who rely on broadband to keep in touch with relatives and monitor their (dwindling) market-invested retirement funds, in a position to subsidize the downloaders and uploaders who are choking cable systems. There’s an obvious inequity there.

Three, we often hear that this model would “decriminalize” millions of infringing downloaders. It would. But the cost would be not just the rights of creators but their potential for profit as well. Remember, there are fixed costs involved here, but the artist or copyright owner no longer has the ability to control any aspect of production or distribution, this making it more difficult to determine potential returns.

But the fourth point here is that, for the first time in history for most creators, they would be working under a ceiling that pitted one artist against another. For argument’s sake, we’ll pretend such a Byzantine system could be created. Let’s say there are a million broadband connections in this country, and let’s say a mandatory collective licensing system imposed a $5 monthly download fee for music. (My in-laws would be pretty upset, as noted above.) That is $6 billion annually, a ton of money. But remember, some will go to ISPs for transferring on the tax. Some will go to whatever organization is distributing funds, and that organization will have to be active in tracking download and upload activity across the increasingly decentralized Internet so artists could be paid accurately. So let’s say, based on models that exist currently, $4 billion is left for distribution to copyright owners, including performing artists and songwriters.

That is a fixed amount. No more can be distributed. The music industry for years grew and grew because more artists attracted more fans. Now, no matter how many artists, living and dead, were competing out there, a sale for one is a loss for another. If I download “Kashmir” from Led Zeppelin, that is a wee bit less than Fountains of Wayne will earn that year for “Peace and Love.” Note I haven’t even mentioned new releases here. Who would want to enter an industry where you are not paid based on your own success, but rather your financial return is capped and is relative to the success of everyone who has ever recorded in your industry and is still under copyright?

Finally, let us remember that this model is mentioned for recorded music, presumably to “decriminalize” infringing file-sharers, but with increases in broadband speed, memory capacity and screen displays for CE goods, videos are under near-equal siege to sound recordings. If we fit motion pictures and broadcast shows under that $4 million, we have diminished those industries’ revenues by multitudes of magnitude.

It is extremely unreasonable to think “The Dark Knight” — which some bloggers this year cited as an example of how Hollywood can make money off of a well-made movie even when it is pirated — would ever be made, knowing its potential returns would likely fall vastly short of production costs under this capped regime? And what of video games? Business software? Books and magazines? All are copyrighted works, all involve creativity and expense, all are digitized. Why would we select a collective system for one entire creative industry and not others? International treaties intentionally do not extend more rights to one artistic group over another. We should not be tempted to do that either, whatever past precedents exist in any particular industry.

We’re in the home stretch now. Next up is Part Four of Five, in which I focus on copyright as a monopoly and a property right.

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This entry was posted on Tuesday, December 2nd, 2008 at 6:01 pm by Patrick Ross and is filed under blogging, copyright law, copyright opponents, creators, economy, licensing, market forces, piracy, property rights. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.