Blogs & Comment

It's a pirate's life for me

In his 2008 book The Pirates Dilemma(Free Press, $28.99), which will be out in paperback on May 5, author Matt Masonlaid out how in some cases companies can learn from those that pirate their intellectual property and profit from that information. In light of todays convictionof the four founders of Swedish file-sharing network The Pirate Bayfor breaking copyright law, I thought it would be useful to post this previously unpublished Q&A I conducted with Mason in May 2008.
Can you please define the term pirate as you use it in the book?
I use the term pirate very loosely in the book. I use it to describe all kinds of people whove used information, or are using information, in novel and unconventional waysoften ways that they shouldnt be using it. So that can be someone downloading music or remixing a record, or a piece of intellectual property that doesnt belong to them. Or anybody who is creating something that is a piece of information, or a way to access or share or network information thats kind of against the mainstream. The reason I used the term that broadly is because I sort of feel that lots of people think that anything thats kind of a bit unconventional is something to be fought, or something they should be scared of. I was trying to use it in a provocative way just because I was aware a lot of people just are very suspicious of anything thats new, and against the older business model.
What is the pirate’s dilemma?
The pirates dilemma is a dilemma all of us are facing. I call it the pirates dilemma because were all in the same space as pirates. And were all able to either act like a pirate, and take other peoples intellectual property and do unconventional things with it, or were vulnerable to pirates. The dilemma is do you fight this, or do you embrace this as an opportunity? If somebody does this to you, or youre in a business where piracy is a problem, do you do something about it in the courts, or do you match the pirates play for play in the marketplace? The answer to the dilemma is: it really depends on the kinds of pirates you are facing, and what it is theyre doing. If theyre doing something that adds no value to society at all, then its usually advisable to fight piracy.
Last year [2007] Colgate had its toothpaste ripped off by a firm in China who started manufacturing fake Colgate toothpaste. Unfortunately there was a problem manufacturing this toothpaste and it had lead in it, and it was poisonous. Well, poisonous toothpaste isnt adding any value to the Colgate brand, and its certainly not helping anybody who brushes their teeth with it. Thats a clear case of this is bad. Weve got to stamp this out.
In the case of the music business, for example, people figuring out a new way to distribute music is adding value to all of these other parts of the music business, and its adding value to fans. People like being able to walk around with 30,000 songs in their pocket. And they like being able to distribute music in different ways. And, if you look at the market share of independent labels, independent labels account for a third of all of the record labels now in the U.S. Thats a huge change thats going up and up. And thats because these barriers to entry are not there the way they once were. Its not about shelf space in Tower Records, its about getting the music out there and connecting with your fans, and there are so many ways to do that now.
How do you think pirates have changed the game in the marketplace?
In a variety of ways. One thing were seeing now is that while theres lots of resistance to piracy, and its a problem and its affecting businesses in bad ways, people are starting to realize that letting fans copy and remix your ideas can be something quite positive. Weve seen lots of the big media companies going from just automatically issuing cease and desist letters if somebody rips something off, to kind of considering things, and weighing out the pros and cons of whether the pirates have added value to their business. A good example is theres a group called Guyz Nite who made a video called Die Hardthat they put up on YouTube. This song is literally a recounting of what happens in the first three Die Hardfilms. Its a really funny song. And they just used clips from the Die Hardmovies to illustrate that point. And Foxs legal department sent a cease and desist saying please take this down, you dont own the rights to these clips. And they did. A few weeks later they get a call from the marketing department at Fox saying: how much do we have to give you to put these clips back up? Because they were promoting Die Hard 4, and millions of people were watching this video online, and they were noticing that it was making people aware of Die Hard, and remembering the previous three films. It was a good marketing ploy for Fox. So they ended up paying Guyz Nite to put the video back up, and inviting them to the premiere of Die Hard 4.
Were seeing more and more stuff like that happen. Another example is Soulja Boys video Crank That was a huge hit in 2007. People just started taking cartoon characters and re-making the Crank That video, and getting these cartoon characters to do this dance that he does in the video, so you have like SpongeBob SquarePants, or Mickey Mouse or you have the Flintstones, you have all of these characters, the Simpsons, Family Guy, every major cartoon franchise was ripped off and put up on YouTube doing the Soulja Boy dance. And not one cease and desist letter has been issued yet over this because although copyrights being violated companies are realizing they dont have to pursue everybody every single time. If something is not detracting from the original franchise in some way, then people are letting it go. So its cool. Fair use is expanding in a strange way, and people dont really talk about that. They talk about all of the bad things that are happening, companies suing people and being really paranoid, which is happening a lot, but on the other hand I think the tide is starting to turn on this.
Can you give me any examples from other industries?
A good example is in the pharmaceutical business pirates in the developing countries have been reverse-engineering patented drugs for years, and selling them at much cheaper prices, selling generic versions. This has been going on all over the world for decades. And entire governments like Thailand and India have ignored Western patents, and explicitly said theyre going to ignore those patents because the prices of the patented drugs are too much for people in those countries to afford. And rather than let people die theyd rather ignore the Wests IP laws, and have people get healthcare. Theres a leukemia drug they started reverse-engineering in Thailand that Novartis owned the patent to, and Novartis realized there wasnt too much they could do in the course to stop this, it was just going to keep happening. So instead they went in, and started handing out the patented original version of this drug for free. And they made a big song and dance about this. Theyve got this new CEO, whos quite progressive, and his thinking on it was that it was the right thing to do, but it was also a good move for Novartis. All of these drug companies spend more on advertising than they do on research and development and we all think that they are really awful, evil companies. They spend all of this money on advertising and it doesnt really work. Well when they go and do stuff like this in the developing world people hear about it, and that makes people think better of those drug companies.
What would you say is the most egregious example of an industry ignoring pirates to its peril?
Without a doubt the music industry. The last 10 years, it didnt have to happen the way it did with all of the lawsuits, and the PR disasters record labels have faced. People used to love the record labels, and now theyre considered really awful companies by a lot of people. Thats a big change, and the change has come because of the way theyve responded to downloading.
And were going to get to a point sometime this year [2008] when there are some very widespread all-you-can-eat music models where you can consume as much music as you want, and download as much music as you want for around $5 a month. I think were going to see that happen this year at some point. That could have happened 10 years ago. That model was put forward 10 years ago, and the majors all flatly rejected it. It took a decade of them hemorrhaging money before weve got to this point where theyre like, ok. Well do it then. They could have really responded differently. Theyre starting to now, and thats good.
Do you think they can recover?
Possibly. Not in the way that theyll go back to the old way of doing business, because that model is gone. CDs only account for 25% of the music business now. People just do not buy them the way they did, especially younger people. And the way the record industry propped its way up for years was to keep re-selling people music they own in different formats. You transfer from vinyl to tapes, and tapes to CD. Well thats not going to happen anymore. You dont need to do that with an MP3 file. Its just a file, and the way you play it, theres not going to be any big money in selling people a new physical format.
As musics becoming more ubiquitous, and its travelling and flowing everywhere, other parts of the music industry are doing much better. Like concerts, merchandising, ringtones. Vinyl sales doubled in the U.K. last year [2007]. People are spending more money on music, theyre just not buying pieces of recorded music the way they once did. The record industrys going to get healthier. It might not be the established companies, or companies that are very entrenched in one way of doing things that get healthier. Some of those companies may go away. But this has always been the way in the record business. You go back 20 years, in the U.K. there were four major labels: Decca, Pie, Phillips and EMI. Only EMI is around today. Its like any business. Theres disruptive innovation and then different companies merge, and theres always winners and losers, but thats normal.
Do you think youth culture has more of an influence on capitalism now?
Youth culture and culture at large have always informed capitalism. If you look at the nature of capitalism, and of selling goods and services, the way we connect with audiences and sell people stuff is by giving that stuff meaning using culture. So you make fizzy drinks, and you want to get through to 18-24s, well you find out what the particular 18-24s youre targeting are intothe music they like, the images that will appeal to them, the fashion theyre intoand you use these things to sell them fizzy drinks. Thats the way weve always marketed stuff to different groups of people. We sell things in a way that will appeal to them given their cultural preferences. So capitalism has always taken meaning from culture and attached it to things to sell those things to us. Well something different is happening now. Culture is finding ways to take meaning back from things that previously only existed in capitalist models, or corporate models. So say the idea of creating an encyclopedia. Well that was something that you really needed a company, an organization, to accomplish. Well, now we have things like Wikipedia, which is just a group of people getting together and deciding for the hell of it, lets amass all human knowledge in one place and constantly update it. These are very new ideas, and just the way the things I was talking about like Guyz Nite ripping off the Die Hardfilm and creating a really cool ad campaign nobody at Fox would have come up with. Thats consumers taking meaning from products and using that meaning.
But theres also an opportunity there for companies as well. Theres an opportunity for companies to work with these networks of people using their stuff to create meaning, and to add value to the company. So, the nature of capitalism is definitely changing. Whats becoming less important is capital itself. If you look at the music business, what the majors have been doing for a long time is acting as kind angel investors, or venture capitalists. Theyll pay for the video, and the production of the record and the marketing, and all of this stuff that required large amounts of money that most artists didnt have lying around. Now you dont need quite as much money as you once did if the marginal cost of distributing music is zero, if you can distribute one copy and a million copies on iTunes for the same amount of money you dont need any trucks, you dont need any CDs, you dont need shelf space. And the way you can connect with audiences, you dont need to make a $100,000 video and fight other people to get it on MTV. You can put it on YouTube, you can put it on MySpace, you can put it all over the Internet and all of these places where you can connect with fans, and if people like it, it will travel on its own. So capital is not as important as the value of a good idea in a lot of areas anymore.
Do you think copyright serves a useful purpose?
It definitely serves a useful purpose. The thing people dont quite get about copyright is its supposed to protect creativity. Its not supposed to protect old business models. Its not supposed to be used to stifle free speech. In lots of cases it is [doing that]. Lots of times companies claim that people cant publish things because it violates copyright in some way when often it doesnt, and its just companies not wanting sensitive or controversial information to get out. The thing with copyright is its not one right, its a bundle of different rights. The really interesting stuff happening with copyright is things like the Creative Commonsinitiative, which kind of unbundles those rights. So it lets you as a copyright holder say, I own the right to this, but I dont mind if people do this with it, or I dont mind if people remix it, or share it with their friends, as long as they dont sell it, or earn money off it. Or as long as they attach my name to it, and say where they got the original. Its ok for people to use it. These more nuanced ideas about how we share information are really critical, because if you look at copyright law vs. how we actually do things it doesnt hold up anymore.
This law professor John Tehranianin Utah he calculated on average how much money hed be sued for, if he was sued every day for violating copyright purely by accident. Purely doing things that we dont necessarily think of as bad, like photocopying a page in a book, or forwarding someone else an email that you didnt write. And he worked out that worked out that on average he would be sued for $12.45 million a day. That just doesnt make sense. Our laws are out of touch with how we use information. And thats fine, if its ok to ignore those laws. Theres plenty of laws we have that people ignore. In London its still the law that every taxi cab must have a bale of hay in the back, which dates back to the days when taxi cabs were horses and carts, and you needed the extra hay to feed your horse. Well no ones going to pull you over for not having a bale of hay in your cab, but its still the law. We can have laws and thats fine, but sometimes its better for a society to choose to ignore those laws. With copyright in lots of cases there need to be allowances. People need to be slightly more relaxed about what they do and dont sue people for. Some people describe the open source movement as digital communism. Do you believe thats an apt description?
No. Its the exact opposite of digital communism. Its not about central command. Its about decentralization in the most extreme sense. Thats the thing people really miss. Its about lots and lots of people working in this manner that has virtually no hierarchy at all in many cases. And its something different.
I can understand why people think it looks a little bit like communism because theres no money changing hands, and its this way of getting stuff for free. Other than that its completely opposite, if you look at how people organize and do things in open-source environments theres so little hierarchy, and theres so little planning. Its closer to a free market economy than lots of things we consider the free market economy. Theres so much protectionism in the world in what we consider our free market economic systems. Whereas something like open source theres so much more freedom. The thing there isnt a lot of the times is necessarily a market.
Open source is a way for networks to take things back from corporations that you previously needed a corporation to do. You previously needed a large company like Microsoft to create an operating system that would work well all over the world. Well, now we have stuff like Linux, now we have alternatives to Internet Explorer like Firefox, that you dont necessarily need a large company to do. You can do it with a non-profit and a group of dedicated people who dont necessarily want anything back for committing their time and skills to building stuff. So this is a massive change in the way we operate and organize as a society. This is the defining change of our moment in history. And its going to manifest in various ways in the future that are even more profound than creating an operating system or an encyclopedia. As we go on were going to see networks become almost as important in some cases as companies and governments, and as powerful. But the way theyre structured is completely different than anything thats existed before. And we dont yet have the economic tools to explain this properly. Its like trying to define faith purely in terms of science or vice versa. Defining how open source works in terms of free market economics, neo classical economics or communism, none of those things are sufficient. So its going to take us a while to understand how this will work. But its a positive thing. These things are adding value to governments and corporations and society.
Why should businesses embrace this movement?
Open source is adding value to lots of business models, and its creating more opportunities. If you look at companies like Mozilla, Mozilla makes tens of millions of dollars every year because it sells companies customized versions of its software. Stewart Brand very famously said in 1984 information wants to be free but customized information wants to be expensive. So if you give everybody something really cool for free theres an opportunity to sell them something personalized, something they cant get a free copy of, or a free copy is not sufficient. Were seeing this in music, too. MP3 files want to be free, but concert tickets are now, well you can pay well over $100 and up to go to a concert now, and thats kind of normal. That didnt use to be the case. Concert tickets were a lot cheaper. But because musics become more important to people the live experience has also become more important, and people are willing to pay more for that.
Whenever something becomes really abundant, it creates other areas where theres more scarcity and more demand and so value and price tends to go up in other areas. And the future is about embracing when this happens to your business, if its adding value to society, then fighting it isnt going to do you any good as a company, because the people youre going to be fighting are your customers. And if throwing lawsuits at your customers becomes part of your business model then you have a terrible business model. And at that point its about finding if somethings become free, or theres a really good open source substitute. Then the value has shifted, and its about working out where the value is, and where its gone, and how you can retool your business to take advantage of the new reality. And theres no point fighting it if that is the reality because thats just going to be a losing battle, which again speaks to whats happened in the music industry.
What is the core message you want to deliver with The Pirates Dilemma?
The core message isnt that we dont need intellectual property laws or pirates are always doing wonderful things for society. Often theyre not. Often pirates are acting very cynically because they can steal something for free, or because they can see an opportunity to make money by selling stuff they dont own. The interesting thing that they do is they do things that arent being done by the market. And often thats a sign that the markets not working as efficiently as it could, and theres a new opportunity to legitimize something.
My message to companies and struggling artists, and all kind of intellectual property owners is that when somebody pirates your intellectual property then youve got two choices: You can go after people and fight themoften thats the best thing to do. But sometimes its going to be better for you in the long run, and the short run, to compete with those pirates and work out what it is theyre doing that people like and find a way to do it better. Thats how Hollywood started. Its how cable TV started. Its how radio started. Its how the record industry started. Edison was a pirate when he started because he had these funny little phonographic discs that could perfectly reproduce what live musicians did. Live musicians thought that these new records were going to be the end of the live music business. They didnt realize it would be another revenue stream. So its about realizing when people start sharing information in unconventional ways often its an opportunity. And its about helping people embrace those opportunities. Im sort of trying to be a negotiator between all of this.