The Demise of Intellectual Property?
In 1997, I published a book of short stories in Israel. The
publishing house belongs to Israel's leading (and
exceedingly wealthy) newspaper. I signed a contract
which stated that I am entitled to receive 8% of the
income from the sales of the book after commissions
payable to distributors, shops, etc. A few months later
(1997), I won the coveted Prize of the Ministry of
Education (for short prose). The prize money (a few
thousand DMs) was snatched by the publishing house on
the legal grounds that all the money generated by the book
belongs to them because they own the copyright.
In the mythology generated by capitalism to pacify the
masses, the myth of intellectual property stands out. It
goes like this: if the rights to intellectual property were
not defined and enforced, commercial entrepreneurs
would not have taken on the risks associated with
publishing books, recording records, and preparing
multimedia products. As a result, creative people will
have suffered because they will have found no way to
make their works accessible to the public. Ultimately, it is
the public which pays the price of piracy, goes the refrain.
But this is factually untrue. In the USA there is a very
limited group of authors who actually live by their pen.
Only select musicians eke out a living from their noisy
vocation (most of them rock stars who own their labels -
George Michael had to fight Sony to do just that) and very
few actors come close to deriving subsistence level
income from their profession. All these can no longer be
thought of as mostly creative people. Forced to defend
their intellectual property rights and the interests of Big
Money, Madonna, Michael Jackson, Schwarzenegger and
Grisham are businessmen at least as much as they are
artists.
Economically and rationally, we should expect that the
costlier a work of art is to produce and the narrower its
market - the more emphasized its intellectual property
rights.
Consider a publishing house.
A book which costs 50,000 DM to produce with a
potential audience of 1000 purchasers (certain academic
texts are like this) - would have to be priced at a a
minimum of 100 DM to recoup only the direct costs. If
illegally copied (thereby shrinking the potential market as
some people will prefer to buy the cheaper illegal copies)
- its price would have to go up prohibitively to recoup
costs, thus driving out potential buyers. The story is
different if a book costs 10,000 DM to produce and is
priced at 20 DM a copy with a potential readership of
1,000,000 readers. Piracy (illegal copying) should in this
case be more readily tolerated as a marginal phenomenon.
This is the theory. But the facts are tellingly different. The
less the cost of production (brought down by digital
technologies) - the fiercer the battle against piracy. The
bigger the market - the more pressure is applied to clamp
down on samizdat entrepreneurs.
Governments, from China to Macedonia, are introducing
intellectual property laws (under pressure from rich world
countries) and enforcing them belatedly. But where one
factory is closed on shore (as has been the case in
mainland China) - two sprout off shore (as is the case in
Hong Kong and in Bulgaria).
But this defies logic: the market today is global, the costs
of production are lower (with the exception of the music
and film industries), the marketing channels more
numerous (half of the income of movie studios emanates
from video cassette sales), the speedy recouping of the
investment virtually guaranteed. Moreover, piracy thrives
in very poor markets in which the population would
anyhow not have paid the legal price. The illegal product
is inferior to the legal copy (it comes with no literature,
warranties or support). So why should the big
manufacturers, publishing houses, record companies,
software companies and fashion houses worry?
The answer lurks in history. Intellectual property is a
relatively new notion. In the near past, no one considered
knowledge or the fruits of creativity (art, design) as
"patentable", or as someone's "property". The artist was
but a mere channel through which divine grace flowed.
Texts, discoveries, inventions, works of art and music,
designs - all belonged to the community and could be
replicated freely. True, the chosen ones, the conduits,
were honoured but were rarely financially rewarded. They
were commissioned to produce their works of art and
were salaried, in most cases. Only with the advent of the
Industrial Revolution were the embryonic precursors of
intellectual property introduced but they were still limited
to industrial designs and processes, mainly as embedded
in machinery. The patent was born. The more massive the
market, the more sophisticated the sales and marketing
techniques, the bigger the financial stakes - the larger
loomed the issue of intellectual property. It spread from
machinery to designs, processes, books, newspapers, any
printed matter, works of art and music, films (which, at
their beginning were not considered art), software,
software embedded in hardware, processes, business
methods, and even unto genetic material.
Intellectual property rights - despite their noble title - are
less about the intellect and more about property. This is
Big Money: the markets in intellectual property outweigh
the total industrial production in the world. The aim is to
secure a monopoly on a specific work. This is an
especially grave matter in academic publishing where
small- circulation magazines do not allow their content to
be quoted or published even for non-commercial
purposes. The monopolists of knowledge and intellectual
products cannot allow competition anywhere in the world
- because theirs is a world market. A pirate in Skopje is in
direct competition with Bill Gates. When he sells a pirated
Microsoft product - he is depriving Microsoft not only of
its income, but of a client (=future income), of its
monopolistic status (cheap copies can be smuggled into
other markets), and of its competition-deterring image (a
major monopoly preserving asset). This is a threat which
Microsoft cannot tolerate. Hence its efforts to eradicate
piracy - successful in China and an utter failure in legally-
relaxed Russia.
But what Microsoft fails to understand is that the problem
lies with its pricing policy - not with the pirates. When
faced with a global marketplace, a company can adopt one
of two policies: either to adjust the price of its products to
a world average of purchasing power - or to use
discretionary differential pricing (as pharmaceutical
companies were forced to do in Brazil and South Africa).
A Macedonian with an average monthly income of 160
USD clearly cannot afford to buy the Encyclopaedia
Encarta Deluxe. In America, 50 USD is the income
generated in 4 hours of an average job. In Macedonian
terms, therefore, the Encarta is 20 times more expensive.
Either the price should be lowered in the Macedonian
market - or an average world price should be fixed which
will reflect an average global purchasing power.
Something must be done about it not only from the
economic point of view. Intellectual products are very
price sensitive and highly elastic. Lower prices will be
more than compensated for by a much higher sales
volume. There is no other way to explain the pirate
industries: evidently, at the right price a lot of people are
willing to buy these products. High prices are an implicit
trade-off favouring small, elite, select, rich world
clientele. This raises a moral issue: are the children of
Macedonia less worthy of education and access to the
latest in human knowledge and creation?
Two developments threaten the future of intellectual
property rights. One is the Internet. Academics, fed up
with the monopolistic practices of professional
publications - already publish on the web in big numbers.
I published a few book on the Internet and they can be
freely downloaded by anyone who has a computer or a
modem. The full text of electronic magazines, trade
journals, billboards, professional publications, and
thousands of books is available online. Hackers even
made sites available from which it is possible to download
whole software and multimedia products. It is very easy
and cheap to publish on the Internet, the barriers to entry
are virtually nil. Web pages are hosted free of charge, and
authoring and publishing software tools are incorporated
in most word processors and browser applications. As the
Internet acquires more impressive sound and video
capabilities it will proceed to threaten the monopoly of the
record companies, the movie studios and so on.
The second development is also technological. The oft-
vindicated Moore's law predicts the doubling of computer
memory capacity every 18 months. But memory is only
one aspect of computing power. Another is the rapid
simultaneous advance on all technological fronts.
Miniaturization and concurrent empowerment by software
tools have made it possible for individuals to emulate
much larger scale organizations successfully. A single
person, sitting at home with 5000 USD worth of
equipment can fully compete with the best products of the
best printing houses anywhere. CD-ROMs can be written
on, stamped and copied in house. A complete music
studio with the latest in digital technology has been
condensed to the dimensions of a single chip. This will
lead to personal publishing, personal music recording, and
the to the digitization of plastic art. But this is only one
side of the story.
The relative advantage of the intellectual property
corporation does not consist exclusively in its
technological prowess. Rather it lies in its vast pool of
capital, its marketing clout, market positioning, sales
organization, and distribution network.
Nowadays, anyone can print a visually impressive book,
using the above-mentioned cheap equipment. But in an
age of information glut, it is the marketing, the media
campaign, the distribution, and the sales that determine
the economic outcome.
This advantage, however, is also being eroded.
First, there is a psychological shift, a reaction to the
commercialization of intellect and spirit. Creative people
are repelled by what they regard as an oligarchic
establishment of institutionalized, lowest common
denominator art and they are fighting back.
Secondly, the Internet is a huge (200 million people), truly
cosmopolitan market, with its own marketing channels
freely available to all. Even by default, with a minimum
investment, the likelihood of being seen by surprisingly
large numbers of consumers is high.
I published one book the traditional way - and another on
the Internet. In 50 months, I have received 6500 written
responses regarding my electronic book. Well over
500,000 people read it (my Link Exchange meter
registered c. 2,000,000 impressions since November
1998). It is a textbook (in psychopathology) - and 500,000
readers is a lot for this kind of publication. I am so
satisfied that I am not sure that I will ever consider a
traditional publisher again. Indeed, my last book was
published in the very same way.
The demise of intellectual property has lately become
abundantly clear. The old intellectual property industries
are fighting tooth and nail to preserve their monopolies
(patents, trademarks, copyright) and their cost advantages
in manufacturing and marketing.
But they are faced with three inexorable processes which
are likely to render their efforts vain:
The Newspaper Packaging
Print newspapers offer package deals of cheap content
subsidized by advertising. In other words, the advertisers
pay for content formation and generation and the reader
has no choice but be exposed to commercial messages as
he or she studies the content.
This model - adopted earlier by radio and television -
rules the internet now and will rule the wireless internet in
the future. Content will be made available free of all
pecuniary charges. The consumer will pay by providing
his personal data (demographic data, consumption
patterns and preferences and so on) and by being exposed
to advertising. Subscription based models are bound to
fail.
Thus, content creators will benefit only by sharing in the
advertising cake. They will find it increasingly difficult to
implement the old models of royalties paid for access or
of ownership of intellectual property.
Disintermediation
A lot of ink has been spilt regarding this important trend.
The removal of layers of brokering and intermediation -
mainly on the manufacturing and marketing levels - is a
historic development (though the continuation of a long
term trend).
Consider music for instance. Streaming audio on the
internet or downloadable MP3 files will render the CD
obsolete. The internet also provides a venue for the
marketing of niche products and reduces the barriers to
entry previously imposed by the need to engage in costly
marketing ("branding") campaigns and manufacturing
activities.
This trend is also likely to restore the balance between
artist and the commercial exploiters of his product. The
very definition of "artist" will expand to include all
creative people. One will seek to distinguish oneself, to
"brand" oneself and to auction off one's services, ideas,
products, designs, experience, etc. This is a return to pre-
industrial times when artisans ruled the economic scene.
Work stability will vanish and work mobility will increase
in a landscape of shifting allegiances, head hunting,
remote collaboration and similar labour market trends.
Market Fragmentation
In a fragmented market with a myriad of mutually
exclusive market niches, consumer preferences and
marketing and sales channels - economies of scale in
manufacturing and distribution are meaningless.
Narrowcasting replaces broadcasting, mass customization
replaces mass production, a network of shifting
affiliations replaces the rigid owned-branch system. The
decentralized, intrapreneurship-based corporation is a late
response to these trends. The mega-corporation of the
future is more likely to act as a collective of start-ups than
as a homogeneous, uniform (and, to conspiracy theorists,
sinister) juggernaut it once was.