Intellectual Property Ethics & Piracy

I had an interesting discussion today about media production, distribution, and pricing.  Some of those present expressed a belief that the free market system controls prices sufficiently for media.  The argument was that we pay the prices demanded, thus it is fair that we should pay that much.  I know I have discussed this idea before, on a general level, but I would like to discuss it again, with its relationship to intellectual property and media piracy.

First I would like to submit that the argument that "we pay the demanded prices, thus the prices must be fair" is false.  As I have said, I have addressed the fairness issue previously.  I would now like to address the assertion that we pay the demanded prices.

First let's look at piracy.  Initially, piracy was only defined as maritime theft.  If the crew of one ship overpowered and seized the goods carried by another ship, this was piracy.  Besides the fact that it was specific to sea travel, it defined theft.  Now, theft is most generically defined as someone taking something that does not belong to them and sometimes more specifically as taking something which belongs to someone else, without permission.  There are, however, some underlying assumptions.  First, we assume that the item taken has some value, either monetary or emotional, to the owner.  Second, we assume that the deprivation of the item will cause significant harm or hardship to the owner.  Thus, taking money, a valuable item, or even a worthless item with sentimental value to the owner would clearly be defined as theft.

Media piracy does not take place on the seas, but given that we often use comparable terms for air travel, one might argue that it is not entirely unfair to call it piracy if it has the potential to be transmitted wirelessly (I wouldn't buy it, but the semantics here are not the ones in question).  The concept of media theft however, is rather questionable.  First, could media piracy be construed as taking something of value?  Given the quality of modern media, this is debatable, but I will give the benefit of the doubt and assume that if it were not of value, no one would want to take it.  Second, does the deprivation of the item cause significant harm or hardship?  Well, given that modern media can be copied and distributed for almost no cost, the supposed theft of media does not actually deprive the owner of it.  So, really media piracy does not fit the normal understanding of theft.  There are, however, some that argue that it does still cause significant loss, which could be considered hardship or harm.

Now, let's quantify the loss caused by media piracy.  Unless the stolen item was a book, CD-ROM, or other physical media, there is no value lost directly from the media.  If the pirate managed to hack the owner's computer and download it directly from there, the taking of the media might cost the owner a few cents in electricity and network fees, if they pay based on bandwidth used.  As nearly all media piracy takes place through copying physical media at home, transferring files using personally owned physical media, or through networks in ways that never touch the owner of the media, the pirates generally pay the entire cost of distributing the media.  In short, media piracy does not incur a direct cost on the owner.  This is extremely different from physical media; in fact it is so substantially different that trying to apply the same laws to it has proven absurd.

The actual loss caused by media piracy is not quantifiable. Media companies make guesses, but how are they counting physically copied media?  Does someone tell them every time anyone uses their DVD burner to copy a DVD?  How do they know the number of times their media has been transmitted over the internet?  What about encrypted connections; do they know what gets transferred on those?  So, they actually try to quantify it using guesses based on what little data they can collect.  Besides being a guess, this method ignores other pertinent facts.  They do not take into account how many of those pirates would have paid full price for the media if they had not been able to obtain it for free.  They cannot reasonably claim that they have lost money because someone was able to obtain the media for free, if the person would not have paid for it even if they could not obtain it for free.  In essence, the media companies are calculating imaginary losses that cannot even be estimated to within an order of magnitude.

Let's return to the original assertion: "we pay the demanded prices, thus the prices must be fair."  I don't believe we pay the demanded prices.  Let's put aside the ethics of piracy for a moment.  There has been no time in history where such a large number of people took what was perceived to belong to another person without permission or payment.  (I would like to note here that our nation's founders did not believe that information of any type should belong to a person.  They implemented the patent and copyright systems as a means of encouraging inventors and artists to disclose their work to the general public, so that technology could advance more quickly.  They also recognized that without reward, people would quit creating new things, so they created a system intended to allow a reasonable profit, if the invention/media was of value.  There was no implication of property rights for media.)  I submit that this is how we refuse to pay the demanded prices for media.  When the media prices are higher than we are willing to pay, we obtain it from a competitor that charges less.

In reality, there is no evidence that media companies are loosing significant money from piracy.  All of the figures that can be found on the internet are made up, including the ones attributed to government agencies (who, when questioned, said that they have neither obtained nor published such figures).  In short, they are lies.  Media companies are still making absurd profits on their products, in spite of high piracy rates.  The real question is one of fairness.

The media companies are benefiting from the ability to effortlessly transfer digital media.  In the past, they have had to rely on physical media to transport media.  The first large scale media (ie, mass produced) was books.  These were initially expensive to produce (the invention of the printing press did not reduce the cost of making paper or ink).  Even now, a majority of the production cost of a book is the physical creation.  Then we invented CDs (I am skipping some of the less wildly popular physical media; cassette tapes were pretty big at one point and were the first easily copyable media).  CDs can be copied easily and cheaply.  Still, the physical media distribution is most of the cost.  When we started transferring files over the internet though, the cost per copy was reduced to almost nothing.  This has been an enormous boon to the media companies, because now the biggest cost of selling their product is gone.  Why then have media prices stayed pretty much the same?  Right, so rental costs for movies and games are lower now, and some distributors give discounts for download versions, but nothing significant.  I also understand that you can buy songs at $1 a piece, but as music CDs with 15 or so songs cost around $15, this is not actually a price reduction at all.  The vast majority of the cost per unit has been eliminated, but the price has not gone down significantly.

So, where is the fairness?  The cost of production has dropped to almost nothing.  Why have the prices not dropped?  I understand that these companies need to make money, but this amounts to millions or even billions of dollars unaccounted for.  How then is it fair for them to complain about piracy, when the very medium that allows it is making them greater profits than they could have ever imagined?  Wide spread media piracy is the consumer rebellion against unfair prices.  We are not willingly paying what they are demanding.  Many of us are refusing to pay what they are demanding.  The market is speaking.  This is how a truly free market works.  If these companies want our business, they will have to charge prices that reflect all of the savings that these new mediums are bringing.

What should the government do?  Do these businesses need protection?  To answer the first question, we must first answer the second.  Is there evidence that the media companies are suffering due to piracy?  According to them, they need protection.  If you look at their profit margins, even with piracy, they are still raking in the cash.  I don't think they need any protection.  They are doing perfectly fine.  As such, I don't think the government has any business protecting them.  Further, if there is a reason for the government to intervene, I would submit that it should be in the opposite direction.  Looking at the profit margins (try popular movies, and only look at opening day for a surprise), I would say that these companies are charging prices that amount to extortion.  If anyone needs protection it is the consumers.  That said, I think that we have found a fairly good solution: piracy.  Not only is this a perfectly fair free market solution, it requires no government action at all.  We have already seen it work.  The iTunes store finally dropped the oppressive DRM built into all of its products.  This generated further evidence that people are more willing to pay than pirate if it is a fair deal, when their sales shot up as a result.  That aside though, the government is supposed to represent the people, and if piracy rates are as high as the media companies claim, then the people have spoken. At this point, the government has no business intervening in behalf of the media companies.

I don't think most media pirates are greedy people who are unwilling to pay fair prices when they can easily get it for free instead.  I think most media pirates are either unwilling to pay the unfair prices, or are unable to.  There was a time when convenience was also a major issue.  The iTunes store and other vendors found ways to make purchasing media more convenient, and sales went up.  DRM has been a huge issue, and when iTunes dropped it, we saw their sales go up again.  I think that if prices were reduced to a fair amount, we would again see an increase in sales and a drop in piracy.  There will still be people who want free stuff and will not be willing to pay if they can get it for free, but I don't think this describes most media pirates.

The American people are demanding fair prices.  The government can try to prevent media piracy, but we will always find a way around it (PIPA and SOPA did not even get passed, but the very fact that the bills got to Congress resulted in more means of circumventing internet censorship).  Piracy may be illegal, but evidently, most Americans do not see it as ethically wrong, when the only alternative is to be treated unfairly by media companies.  When the ethical dilemma of piracy is compared to the ethical dilemma of extortion, it looks like piracy wins.  The only way to reduce piracy is for the media companies to listen to the people and begin treating them fairly.