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So I agree that we shouldn't take compatibility problems as evidence that there's necessarily anything wrong with the market.
My only quibble is to go back to the point Steve made: The console and DVD format wars are examples where incompatibility is driven by technological considerations: you can't make a better mousetrap without inconveniencing the people who owned the previous mousetrap. With gaming consoles, incompatibility might be an unfortunate but unavoidable side effect of technological progress. You can't make an omelette without breaking some eggs, and maybe you can't make a great console without breaking backwards compatibility.
In contrast, incompatibility isn't an unintended side-effect of DRM--it's the whole point of the technology. There isn't any offsetting benefit to the consumer.
I agree with you that we're not in a doom-and-gloom scenario, although maybe I don't emphasize that as strongly as I should. There's still healthy progress going on in the consumer electronics industry, and I don't think that will change any time soon. I just think this progress has occurred despite, not because of, the DMCA.
And obviously we agree on the bottom line from a policy perspective: the government needs to get out of the way and let the market work. I predict that DRM will end up on the ash heap of history, but I'm willing to wait and see what consumers, speaking through the market, decide.
Tim, again you express your lack of confidence in the market. Somehow, consumers flaunting their spending power to by DRM-enabled systems is not market activity to you.
So, what would the digital entertainment industry look like without DRM Tim? Who would bother making the iPod.
If any business exec would read even a handful of your DRM writings, they'd see a very lucrative market for DRM-free music players-services. But either you're more visionary than most entrepreneurs and business development professionals, or they don't see much opportunity in the market for what you propose.
I've said this before. Tim, Your view against DRM is pretty much a natural rights-liberty perspective. When you try to argue it through business or technological perspectives, the argument is simply a stretched effort.
Like Tim, I'm not always certain that the resources needed to create interoperability are always, at the margin, worth investing it in rather than other things. Let's take the MP3 player example rather than the video game one, because here we don't have any costs of providing interoperability. The argument is as follows: right now, so long as people can rip CDs to MP3s or pirate them in MP3 format, any player can play any song. This means that hardware manufacturers know that ALL they have to do is compete on features and price. Hence lower barriers to entry and more competition. This is one of the reasons that MP3 players have progressed so well.
Now let's take a world in which, magically, there's no more internet piracy, all CDs are magically DRM'd, and iTunes has retained its dominance online. Now hardware manufacturers can only compete if their product is SO MUCH BETTER than an ipod that it justifies consumers rebuying their entire library all over again.
The same logic applies more or less directly to consoles: if there were no legal or artificially technical barriers in place to interoperability, hardware companies could compete purely on hardware features rather than historical lock-in. Hence, lower barriers to entry and more competition.
The counterargument is Noel Le's hyper-Schumpeterianism. Noel Le's theory--shared by a depressing number of people--is that market power and lock-in isn't just an unfortunate consequence of market processes, but is in fact desirable and necessary for all competition, and in fact, the higher the barriers to entry, the more competition we'll get because of how valuable getting that monopoly will be. This is the view that Levine and Boldrin rail against in their book, and rightly so, because it's insane: it comes down to "nobody will compete unless they believe they can get a temporary monopoly." This is exactly the argument that free-marketers have critiqued so strongly back when it was used to defend feudal guild privileges, when it was used to defend tariffs and subsidies, when it was used by Galbraithians to defend favoring industry concentration, etc. etc. throughout history. IT WAS AND REMAINS A LIE.
As Boldrin and Levine show so well, monopoly doesn't breed competition (and innovation), COMPETITION breeds competition (and innovation). It is a complete inversion of free market principles to claim that we ought to enhance legal barriers to entry IN ORDER to get competition. The wonderful thing about people is that they innovate precisely IN ORDER to successfully compete, and the more cutthroat the marketplace, the more innovation we see.
The absurdity of Noel's position can best be seen in his claim that absent DRM, "who would bother making the ipod?" Well, gosh, Apple would and did, for one. The iPod was introduced (and I bought one!) 1.5 years before the iTunes store; if you think most iPod users fill them up with iTunes DRM'd tracks, you are insane. Apparently 1.5 billion tracks have been sold; 67 million iPods have been. That translates to, oh, about 23 tracks per iPod. How many people do you know that have 23 tracks in their iPods, Noel? I have a few thousand, and none of them are DRMd.
Schumpeterianism was wrong when Schumpeter expounded it and it's even more wrong now. Apologies for the passionate tone, but this is important.
I can't decide whether to laugh or cry when I see people like Noel Le passionately defending legal restrictions on commerce by saying we're criticizing the decisions "the market" has made. No, we're criticizing the way these LEGAL RULES have DISTORTED the free market.
And you also realize that eMusic, which sells DRM-free tracks, is now the 2nd-most successful online store, right?
And you ALSO realize that the most popular form of music, the plain ol' CD, which sells something like 400-500 million units per year in the US--which translates to around 4-5 billion tracks--is ALSO DRM-free, right?
Because gosh, it seems like if you did recognize these simple facts, you'd also realize the absurdity of your own question. Consumers don't like DRM. They put up with it when they have to--when the songs they want are available no other way, or when other conveniences (online procurement) outweigh the bothers. Record labels are obsessed with DRM because DRM gives them the illusion of control, and because arguments in favor of giving up control are very counter-intuitive and go against the industry's corporate culture and individual incentives.
So if the games were somehow compatible with all consoles, it would be much easier to release a new console, simply because there would already be vast numbers of games out there that you could play on it.
Of course, it's the imcompatibilities that actually make new consoles attractive, which certainly isn't the case with music formats.
www.audiolunchbox.com is an example of a service that offers drm-free music (and also one of their selling points). They also offer an alternative to the classical big-label-rights-appropriation model that has been in play so far. They leave artists their rights. All they do is distribute their music.
I think the market of completely legal drm-free music download is coming. The market has inertia, but I see it changing. Slowly.
X hit the nail on the head in his response. Consumers cannot be said to be embracing DRM as something that makes sense to them. Most people in most situations are choosing non-DRM music. No one answered my post in the other thread, but X. makes the same point, only more thoroughly. Forget piracy. Even legal music purchases are mostly non-DRM. If we're looking to the marketplace for answers, the marketplace is speaking.
I submit that as downloading from ITMS and its DRM-laden competitors increases and CD sales decline, interoperability will become proportionately more important to the consumer and they will become ever more convinced that DRM does not make sense. How they will express that resistance, I don't know. Time will tell. Perhaps the CD will simply refuse to die, in spite of the increasing number of obituaries being written for it.
1. "Consumers overwhelmingly choose, whether through CDs or through internet piracy (~1 billion tracks -per month-), DRM-free music."
Regarding internet piracy, consumers aren't choosing DRM-free music, they are choosing FREE music. It's hard to compete with free.
2. "[i]t comes down to "nobody will compete unless they believe they can get a temporary monopoly." This is exactly the argument that free-marketers have critiqued so strongly back when it was used to defend feudal guild privileges, when it was used to defend tariffs and subsidies, when it was used by Galbraithians to defend favoring industry concentration, etc. etc. throughout history."
The examples cited are of free marketers arguing against government regulatory actions that created obvious market preferences for particular industries like textiles, agriculture, etc. These were economic regulations, as opposed to property rights.
More importantly, these were PROHIBITIVE arrangements. There is no way that a market can work around a tariff unless the market creates a substitute. So instead of sugar we have high fructose syrup in many of our foods. There's a difference between the market for sugar and the market for music. You can still get music in different formats, and it's still music. It still sounds the same to most ears on most audio devices, at least at 128k+ bit rates.
At least in this regard, I believe X.Trapnel's fear of hyper-Schumpeterian monopolies about the DRM is overblown. And any externalities associated with the DMCA (call it an assignment of a DRM property right to the content creator) and a lack of interoperability might be mitigated by Coasian bargains among competitors (licenses) and the exemptions that exist in the DMCA.
1. It's impossible to do an exact apples-to-apples comparison, because the labels are refusing to release DRM-free music, generally. So we don't have the chance to compare 50 Cent's track on iTunes with Fairplay vs. 50 Cent's track on eMusic with no DRM. It's hard to compete with free, but it's ALSO hard to compete with big-name labels backed with massive advertising and exposure; it's rather astounding the eMusic is doing as well as it is. So I agree that my piracy comparison is *slightly* unfair, because of the 'free', but people compete with free all the time (private schools, bottled water, cable television, etc., etc.). The point about music CDs does hold, and is even stronger because here the comparison is unfair the other way--most people don't WANT whole albums.
Just be serious: are you really claiming that people LIKE DRM? At the moment, most aren't bothered *much* by it, because it doesn't interfere with their iPod use, and the iPod is still, by far, the best music player out there. But suppose in 5 years someone finally, definitively, kicks the iPod's butt and creates a player far superior on every dimension. All of a sudden there are going to be some very, very unhappy customers who realize that All Their Songs Are Belong To Apple.
2. This is pure question-begging, except perhaps for the caveat about 'obvious'. IPRs aren't LIKE other property rights; you already HAVE a property right in the object that instantiates the idea/creative expression/whatever. IPRs are PRECISELY prohibitive arrangements that grant market power--if they weren't, nobody would WANT one. Just like tariffs, their effect is limited just to the extent that people can substitute around them--Kim Harrison instead of Laurel Hamilton for vampire-romance, 50 Cent instead of Eminem, one patented process (or OSS) versus another. My claim was: IPRs, and the DMCA through DRM, restrict competition. It's not a refutation of my claim to say that market processes will mitigate these effects; that's like saying tariffs on sugar aren't bad because we get corn syrup to compete. What markets are doing is trying to route around the damage; that doesn't mean the damage isn't there.
Technology is "ideology neutral," granted it represents "freedom" or anything else by how the market values it. Lets not assign technology subjective ideological values and bypass the market's decisions.
I think we agree that legal drm-free music download services are (or at least should be) welcome in this market. In fact, I'd be ready to bet that we both agree that any legal music download service is (again, at least should be) welcome in the market. Large labels have not been so welcoming in the past, but now some are here to stay. The question is whether drm is unevitable and whether the preservation of drm-integrety through the DMCA makes sense.
1-DRM is not a necessary evolution of the market. The point being made by several here is that consumers choose non-drm options when possible. Many people don't download songs, but simply buy cds and rip them themselves to use on an ipod, which represents a choice of drm-free digital media.
2-if DRM integrety was not enforced by the DMCA, some contend here that there would be more competition in the personal digital music player market. Companies would come up with players that can circumvent DRM so you can enjoy music bought legally from any service on any hardware.
Note that nowhere here have I assigned an ideology to technology. I'm simply stating that DRM is not an option that is favored by consumers and DRM-integrity enforcement through the DMCA probably results in less comptetition. My previous post was to point out that there are companies forming that recognize that most consumers do not want to be pirates, they simply want a convenient solution and so they offer it to them. My personal opinion is that large labels are actually scared of that. Downloading songs without the DMCA reduces their possibility of vendor lock-in and thus effectively puts anyone who can code a website to offer songs for download on the same footing as any of the large labels (at least as far as distribution of music goes). What saves larger labels, now, is the fact that they have running contracts with major artists and hold the rights to a lot of the music people listen to every day. But this has started changing and will slowly change, as Tim said it, not because of the DMCA anti drm-circumvention articles but despite the DMCA.
Again, I don't think I'm understanding this situation from an ideological standpoint. I'm simply stating my interpretation of the state of the market and it's possible evolution to something different.
X, to address some of your points. I've been busy, so I haven't been replying in detail.
The majority of songs played on the iPod are MP3 formats, but Apple captures the value of its MP3 compataibility by excluding Apple DRM schemes. DRM is important to the iPod because of this.
Also, I believe Braden Cox's insight on your CD analogy is fundementally right. You even prove the importance of DRM for allowing price discrimmination and scaled offerings by saying that folks don't want to buy entire CDs. With DRM, producers can offer and price at smaller units of goods (songs rather than CDs). Without DRM, producers can only offer all or nothing.
No, nobody's songs belong to Apple. How do you gather this X. Even if songs did "belong" to Apple, the party that beats Apple out of the market should address backwards compatibility to lower switching costs for consumers (which is the only near term way I see Apple losing the music player war).
Not so fast X:) Parties seek IPRs to obtain market exclusivity, but competitors are restricted from distributing copies of the copyright/patent, not goods that legitimately compete with it. Also, IPRs do not automatically confer market power. Just by obtaining a copyright or patent, a party does not exclude competition for the product or services market. See my citations to Profs Edmund Kitch and Mark Lemley, which address your concerns.
Does this mean you're in favor of allowing companies to circumvent DRM in order to ensure interoperability?
From what I've gathered, you can look at legal circumvention this way: 1)does the act of reverse engineering for interop pose infringement. I believe courts are somewhat lax on this prong, they tend to be or rigid on the next, which is, 2)does the interoperable product infringe or defeat the purpose of the DRM scheme. The purpose of DRM can be seen as preventing unauthorized copying. Streambox fell to the second of these, as did BnetD.