How not to think about music, Part XVII

by Mathew on January 24, 2008 · 22 comments

Sometimes I read something and am rendered speechless — and not in a good way. I had that reaction this morning to a staggeringly dense opinion piece in PC Magazine by Lance Ulanoff, about the “dangers” of DRM-free music, and how this is not only going to cause the ruination of the entire content industry as we know it, but flies in the face of centuries worth of economics. We even get a charming little vignette of Lance talking to his young daughter about bartering, etc.

Lance, who is allegedly editor-in-chief of the PC Magazine network, says the digital content industry is “on the road to ruin,” and that with each step towards removing DRM controls and offering music for free, the music business is “digging itself in deeper.” Lance must be looking at the digging from the opposite side, because to me it sure looks like they are digging themselves out rather than in. Not our Lance though. He says that the digital economy is on the verge of collapse.

As Mike Masnick notes over at Techdirt, the economic “arguments” that Lance puts forward (and I’m using that term very loosely) are completely out to lunch. A lack of DRM controls isn’t making music lose its value — the effects of digitization and the economics of abundance are, as marginal costs of production fall to zero, or close enough to make little difference. Putting DRM controls on music isn’t going to somehow cause value to reappear by magic. Value has moved elsewhere.

Note:

This isn’t really relevant, but I can’t help myself: Lance’s article also uses the word “staunch” to mean an attempt to stop the bleeding (metaphorically) in the music industry. The word is “stanch.” Staunch means dependable.

  • http://www.tomstechblog.com Tom

    I was once told that there are facts and there are opinions. People can be stupid if they don't know the facts but anyone who thinks another person is stupid for their opinion is probably saying more about their own intelligence. Something to think about…

    There's nothing inherently incorrect about what Mr. Ulanoff says and while I don't agree with him there's something to be said for the fact that he's essentially endorsing capitalism (which has a history of working) while you're essentially endorsing (at least the knowledge based aspects of) marxism which has a history of not working. Further, I've scoured the multiple links on Techdirt and have yet to come up with actual respected economists who endorse the theories he put forth there. That doesn't mean they're wrong but it does mean that people who disagree with them probably aren't stupid for doing so.

    Again, I don't agree Mr. Ulanoff but his post certainly wasn't “staggeringly dense” and for you to say so really makes you come across as someone adverse to anything he doesn't personally agree with. Nothing he said was as far out there as the idea that a low marginal cost (it isn't zero because of things like bandwidth) will in turn drive the price of an item to zero.

    I guess it is nice to see you peeking your head out of the echo chamber you've built around yourself it would just be even better if you did so with an open mind.

  • http://www.mathewingram.com/work mathewi

    “I was once told that there are facts and there are opinions. People can be
    stupid if they don't know the facts but anyone who thinks another person is
    stupid for their opinion is probably saying more about their own
    intelligence. Something to think aboutÂ…”

    Is that your roundabout way of calling me stupid, Tom? Because if so, it's
    not having much effect. Lots of people have called (and continue to call)
    me stupid — for both my facts and my opinions — so I'm pretty used to it.
    And Lance better get used to it too, if he's going to keep writing dreck
    like that. Opinions are supposed to be based on facts — unless you're
    admitting that Lance doesn't have any, or has the wrong ones, in which case
    I agree with you.

    As far as facts are concerned, you've got yours mixed up as well. Talking
    about marginal costs of production and the relatively scarcity of digital
    content has nothing to do with Marxism, no matter how much you would like it
    to. And if you did a bit more research you would find that it is well
    accepted economic theory that the cost of a resource in a free-market
    economy will (in theory) decline to the point where it approaches the
    marginal cost of production. That's what we're talking about. Obviously it
    rarely ever actually gets to zero — and remember that we're talking about
    the cost of *production* and not distribution.

    If you want to really talk about the issues, we can do that. If you just
    want to moan about how I was unfair to Lance, then I'm not interested.

  • Vincent Clement

    Don't waste you breath on him Matthew.

    Tom believes that suing customers is a good strategy. He believes that file sharing is stealing. He wants people to do community service when the RIAA wins a case (when did civil law become criminal law). He believes that p2p hurts the industry and is depriving fans of music despite there being more music available than ever before.

    It's a sad state of affairs when a person in the IT sector cannot come to grips with new ways of doing things.

  • mmasnick

    Hey Mathew, mentioned this on Twitter, but just letting you know that the analysis was mine, rather than Tim's — though, as I said, I think Tim would have said something quite similar.

    As for Tom's comment here, there are actually plenty of well respected economists who support the theories we talk about, which aren't even remotely close to “Marxist”. One of the recent Nobel prize winners in economics has come to similar conclusions, and future Nobel prize winner Paul Romer also has come to similar conclusions. David Levine, who is also a well respected economist has written an entire book on the subject.

    And that's just the advanced stuff. It's somewhat stunning to hear Tom say that respected economists don't support the theory that price = marginal cost. That's a pretty early chapter in any intro to econ book.

    So, I'm not sure why Tom would suggest that it's “out there” to think that price gets driven to marginal cost.

  • http://www.mathewingram.com/work mathewi

    Sorry, Mike — not sure why I thought it was Tim's piece. I can only assume
    I was reading one of his just before that, and got them mixed up. My
    apologies. And I didn't see the Twitter message for some reason.

    I'm glad you jumped in to respond to Tom as well. I'm not sure where he's
    coming from, but it's nice to get some confirmation that I'm not just out in
    left field, economically-speaking.

  • mmasnick

    No worries on the attribution. It's not a big deal, but figured I'd point it out. Tim deserves plenty of recognition for the stuff he does write, though. :)

    While here in Edinburgh, one of the lectures I gave was on the economics of the digital era, and at some point I'll need to write about the reactions. I was somewhat shocked that the students (mostly grad students in either “informatics” or business) seemed to agree. Not much dissent. Best part, folks seemed most interested in figuring out how to use it to their advantage. Neat.

    So, it appears that people are recognizing these basic economic principles make sense and can be used in a positive manner. Maybe then I can finally shut up about it. :)

  • http://www.mathewingram.com/work mathewi

    I guess maybe they've gotten to that point where zero is just a number, and
    they don't really understand what all the fuss is about :-)

  • http://www.tomstechblog.com Tom

    It was actually my roundabout way of getting you to realize that it wasn't right to call other people stupid. If I were in turn trying to call you stupid that would make me a hypocrite.

    As for Marxism, it isn't the marginal cost argument that has to do with Marxism (that's just bad economics) it's the idea that people don't have the right to distribute things they create in the way they see fit and that society somehow has the right to claim that information for themselves. That's straight out of Marx.

    On the topic of marginal cost, it is accepted theory that end costs fall with marginal costs but not that a marginal cost that falls to zero will in turn create an end cost of zero. I'm not an economist but again I took these arguments to heart and went out a looked for an established economist who was endorsing these ideas and came up completely empty.

    All that said, the point of my post wasn't to necessarily talk about the issues (though I don't mind doing so) but to get you to see you are being close minded when you think anyone that disagrees with you is a fool. There was nothing inherently foolish in the post you quoted and in fact he was just parroting what is the common perception.

    With no offense to Vincent his post below shows exactly the mindset I was trying to get you to avoid which is “don't waste your breath on anyone who disagrees with you because they're all fools anyway”

    I'm not sure you are wrong in your theories of how music should be distributed but what is worrisome is that you don't know they are on the fringe which means most of your news is coming from an echo chamber.

  • http://www.tomstechblog.com Tom

    Well, the last sentance makes it a little hard to take you seriously (the idea that you don't understand why a person would think its out there to give away a product for free is dishonest) but I would be interested in the book you mentioned if you can give me a title. I looked on Amazon and only found one book by him and it was from '95

  • http://www.tomstechblog.com Tom

    P.S. (and let me specify that I'm honestly not attacking you as evidenced by the fact that I just did 20 minutes of google searching)

    Can you point me to anywhere in which Paul Romer specifically addressed Music Sharing? I understand how his ideas could be interpreted to be in favor of music sharing (if you consider music sharing an “idea” as opposed to a “thing”) but that isn't a given from what I've read so far.

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  • mmasnick

    “it's the idea that people don't have the right to distribute things they create in the way they see fit and that society somehow has the right to claim that information for themselves. That's straight out of Marx.”

    Then you've misread my argument — and I apologize if it wasn't clear. I never said that creators don't have the right to distribute in the manner they prefer, and I've certainly never said that people have the right to claim information for themselves. If you think that's what I've said, you are incorrect. I would ask that you point out what I said that gave you that false impression.

    My argument has always been that the *creator* of content will be better off if he or she learns to embrace these economics. And that's not a “far out theory.” There's plenty of economic support behind it.

    “On the topic of marginal cost, it is accepted theory that end costs fall with marginal costs but not that a marginal cost that falls to zero will in turn create an end cost of zero.”

    Huh? So it's accepted theory that price falls to marginal cost except when it's not?

    Can you explain why $0 is somehow different than any other price?

  • mmasnick

    “(the idea that you don't understand why a person would think its out there to give away a product for free is dishonest)”

    I wasn't commenting on that. I was commenting on your suggestion that price = MC being an “out there” suggestion.

    “I would be interested in the book you mentioned if you can give me a title. I looked on Amazon and only found one book by him and it was from '95″

    It hasn't been released yet, though, staying true to his feelings on this subject, he has put the entire work on his website for downloading:

    http://levine.sscnet.ucla.edu/general/intellect

  • mmasnick

    “Can you point me to anywhere in which Paul Romer specifically addressed Music Sharing?”

    He has not directly addressed music sharing. I was simply addressing the question of whether the basic ideas concerning how the economics of nonrivalrous goods work.

    “I understand how his ideas could be interpreted to be in favor of music sharing (if you consider music sharing an “idea” as opposed to a “thing”) but that isn't a given from what I've read so far.”

    Hmm. Romer is rather clear in defining his goods in specific terms: nonrivalrous and non-excludable. That applies to both ideas and music, so I don't see it as being a question of interpretation, but one of fact.

  • http://www.tomstechblog.com Tom

    Well, on the marxist theory this goes back to something that Matthew had said to me in an ealrier thread so I apologize if I implied that you were the source of it. I don't have any problem wih artists submitting to this kind of business model (and as I said above I don't necessarily know that it is wrong) my problem stems from the idea that they should be forced to simply because there is no way to control piracy.

    On the 0 point all I can say is in every school of thought be in physics, natural science or economics there are special states at which the laws that otherwise apply no longer make sense. In Physics its the speed of light and in mathematics its when you get to 0. Why is it that you can divide by any other number?

    Beyond that I would say that just logically your argument doesn't follow as being necessarily true. The cost of goods are always above their marginal cost even though they tend to fall in line. So if the marginal cost falls to zero that doesn't mean that the price does.

    Again, my argument coming into this thread wasn't to say “you're wrong and he's right” but to say “he's not a fool for disagreeing with you” No matter how much you argue this no one side is going to come out as completely right which is why its so important for each side to show respect for the other.

  • http://www.tomstechblog.com Tom

    Thanks for the link!

  • Chris

    This isn't really relevant, but stanch and staunch are variants, not completely different words for different meanings. American Heritage says 'Staunch is more common than stanch as the spelling of the adjective. Stanch is more common than staunch as the spelling of the verb.'

  • http://www.mathewingram.com/work mathewi

    Thanks, Chris — it's true that the American Heritage dictionary (and the
    Webster's) admit that both can be used, but I think they have weakened on
    that point in part because people continually use the words interchangeably
    when they actually mean different things. Stanch means to stop the flow and
    staunch means dependable — two different meanings, two different words.
    I'm sticking to my guns.

  • Vincent Clement

    Cost does not equal price. In a competitive market, it's hard to justify a high price when MC is at or near zero. Other competitors will just undercut your price, which will drive the price towards zero.

  • http://www.mathewingram.com/work mathewi

    Thanks, Chris — it's true that the American Heritage dictionary (and the
    Webster's) admit that both can be used, but I think they have weakened on
    that point in part because people continually use the words interchangeably
    when they actually mean different things. Stanch means to stop the flow and
    staunch means dependable — two different meanings, two different words.
    I'm sticking to my guns.

  • Vincent Clement

    Cost does not equal price. In a competitive market, it's hard to justify a high price when MC is at or near zero. Other competitors will just undercut your price, which will drive the price towards zero.

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