The Price of Everything

by Eduardo Porter

  Some artists have been converted to the creed. Paulo Coelho, the bestselling author of The Alchemist, claims file sharing boosted sales of his books in Russia by several orders of magnitude. He started a Web site, dubbed “Pirate Coelho,” where he put copies of his work to download for free. “A person who doesn’t share is not only selfish but bitter and alone,” he wrote.

  Still, the economic case mustered by the supporters of online theft is slim. Indeed, the evidence so far is fairly unequivocal: offering stuff for free means not making money from it. One analysis of undergraduate students at the University of Pennsylvania concluded that downloading free music reduced students’ annual expenditures on hit albums from $126 to $100, on average. In 2002, other researchers found that peer-to-peer music sharing cut music sales in Europe by 7.8 percent, reducing the chance that somebody would buy music by 30 percent. Yet others concluded that from 1998 to 2002 downloading could have reduced worldwide music sales by a fifth.

  The experience of In Rainbows is held as a prime example of what art can do once it is free from the poisonous embrace of copyright, to be shared around the world. Yet these tactics only seem to work for a select group of bands that are already famous.

  In 2003, when the RIAA started taking people to court for downloading as little as a handful of songs from a peer-to-peer site, they offered researchers a window into the impact of piracy. Tracking the impact of the decision on music sales, a group of researchers uncovered an interesting pattern of behavior. As expected, file sharing plummeted in the months following the announcement of the labels’ legal campaign, as teenagers freaked that they could wind up in jail.

  The interesting finding, however, was that while curtailing piracy had no discernible impact on the sales of top-ranked artists, it provided a significant boost to lesser acts. For albums that debuted on the Billboard charts below the twentieth position, the labels’ legal threat boosted their survival time on the charts from 2.9 weeks to 4.7 weeks. The sales suggested that piracy was particularly harmful to the sales of lesser artists.

  From 1996 to 2003, when free file sharing started to decimate music sales, the price of tickets to top rock-and-roll concerts jumped at about five times the rate of inflation—substantially faster than tickets to the theater or sports events. But the evidence suggests touring is not the solution for smaller bands.

  The “free” strategy works for Trent Reznor, of the American postindustrial rock project Nine Inch Nails. When he launched Ghosts I-IV in March of 2008, Reznor offered a series of formats, from a $5 digital download to a $300 ultra-deluxe package bundled up with a DVD and other merchandise. He also offered Ghost I, the first part of the album, for free online—putting it up on The Pirate Bay and other file-sharing services. And he licensed the album under a so-called Creative Commons license, an alternative to regular copyright offered by a nonprofit organization in San Francisco that allows creators to reserve some property rights but waive others, granting free access to many users on a noncommercial basis. In the first week, Nine Inch Nails made $1.6 million. And Ghosts I-IV was the bestselling MP3 album sold on Amazon in 2008.

  Reznor’s experience, however, also underscores the limits of the strategy for those below the first echelon of pop stardom. On November 1 of 2007, three weeks after the noisy release of In Rainbows , Reznor’s friend Saul Williams tried a similar stunt. He released his album The Inevitable Rise and Liberation of Niggy Tardust!, which Reznor produced and helped bankroll, offering listeners a choice between a free version and a higher-quality one for five dollars. Over the next two months, 154,449 people downloaded the album. But only 28,322, fewer than one in five, paid. A true believer in the transformative power of the Internet, Reznor was dismayed that most of Williams’s fans interpreted free as meaning they didn’t have to pay anything:

  “Saul and I went at this thing with the right intentions,” Reznor said later. “We wanted to put out the music that we believe in. We want to do it as unencumbered and as un-revenue-ad-generated and un-corporate-affiliated as possible. We wanted it without a string attached, without the hassle, without the bait and switch, or the ‘Now you can buy the s**** version if you buy . . .’ No, no, we said: ‘Here it is. At the same time, it’d be nice if we can cover the costs and perhaps make a living doing it.’” For Williams, the “pay what you wish” model allowed 126,177 people—more than four out of five of those who downloaded his music—to pay nothing at all. It is very difficult to make a living against odds like that.

  STEALING SNEAKERS

  In 1979, the Canadian government asked Stan Liebowitz, an American economist who studied copyright, to look into the impact that photocopying and retransmitting TV broadcasts on cable channels would have on publishers and broadcasters. Liebowitz observed that publishers were able to increase the price of the works they published because users valued the fact that they could make copies. To the chagrin of the networks and publishers, he concluded that copying wouldn’t necessarily hurt them. “I appear to be the first economist to suggest that illicit copying might actually benefit copyright owners,” Liebowitz wrote, years later. “But in those days there was not an army of copyright critics to embrace my work and make me a hero, as there is now.”

  Yet by now he’s changed his mind. Three decades since his seminal photocopying study, Stan Liebowitz too doubts there is money to be made from giving music away for free. In a recent study he concluded that the entire decline in the sales of albums in a sample of ninety-nine American cities between 1998 and 2003 was due to rampant online file sharing. Interestingly, sales of jazz and classical music increased—perhaps a testament to the average age of their typical listeners. But sales of hard rock, rap, and R&B fell by double digits.

  It’s a little bit like stealing sneakers, he observed. It is not impossible that a street gang that steals a shipment of sneakers might ultimately boost sales of the footwear if it happens to be a trendsetting paragon of coolness in the neighborhood. A kid who shoplifts steak might mean more business for the butcher over the long term if the theft induces in the thief a lifelong taste for prime beef. Still, Liebowitz pointed out, “I have never seen these types of argument put forward in a serious way to suggest that society might be better off if the prohibition on theft were overturned.”

  On the Internet, the thief is trying to convince the butcher it is in his best interest to hand the steak over to influence his dietary habits. When Google needed illustrations with which to garland its new browser, Chrome, it suggested to illustrators that providing the art for free would be in their best interest. “[W]e believe these projects provide a unique and exciting opportunity for artists to display their work in front of millions of people,” Google said. Melinda Beck, an illustrator in Brooklyn, sent Google an e-mail in response to the offer. She noted that she had worked for high-profile clients like Target and Nickelodeon, which had given her work lots of exposure. Still, she pointed out, “Both clients still paid me.”

  The Google spirit is catching, though, as could be seen in an ad in the fall of 2009 for a law firm in Menlo Park, California, on the free classifieds service Craigslist. “The current economic climate has made it difficult for young lawyers to find paid positions,” it read. “Good experience with a top notch firm is what we offer. If you can realistically make a six to twelve month commitment and can get by without compensation (other than billable travel, mileage, parking and related expenses), this is an excellent opportunity.” Comments to the ad, picked up on a legal blog, were not very nice. One read: “The guys soliciting this should be rewarded with the quality of work they’re paying for and I hope they end up committing and are successfully sued for malpractice.”

  THERE APPEAR TO be two broad classes of potential solutions for information industries. One is to find more effective barriers—technological and legal—to keep content behind a paid gate. Having dropped its lawsuits against individual downloaders, the RIAA has put its sights on Internet service providers—hoping they could become the enfor
cers of legality online—curtailing and maybe even disconnecting the service of those who download material illegally.

  ISPs could even become the collectors of user fees for legal downloads or streams, like a toll at the on-ramp to the freeway. They have become the focus of a flurry of legal activity. In September of 2009 the French Parliament passed a law that would allow ISPs to disconnect clients who were caught downloading material illegally three times. A new copyright law in Sweden forces ISPs to reveal information about unauthorized file sharers to copyright holders, paving the way for legal action. In April of 2010 Britain passed a law that would not only force ISPs to slow or stop the Internet connections of those who repeatedly downloaded pirated material, but would allow the government to demand that ISPs block Web sites that hosted substantial amounts of pirated material.

  This might not work. Time and again hackers have bested even the best software locks. And creating effective legal walls would require international cooperation on copyright that might prove difficult to achieve. “Copyright is becoming obsolete,” Hal Varian, the chief economist of Google, told me. “Even as the law has become more and more restrictive, the practice is getting looser and looser.” Varian doesn’t think companies can protect themselves with gadgetry either: “There is no real technological solution.”

  If this is so, the only thing providers of content can do is try to reconfigure the way their content is offered to consumers, to persuade them to voluntarily pay for at least some of it. Conceptualizing the CD as an ad for the concert would fit in this category, as would the new attempt by music companies to sell subscriptions to legal music streams on mobile phones. For the news media, Varian suggests “versioning”—offering a no-frills version of the news for those who want it for free and premium offerings for those willing to pay. The point “is to get the consumers to sort themselves into different groups according to their willingness to pay,” Varian suggested. “The producer chooses the versions so as to induce the consumers to self-select into appropriate categories.”

  Hopefully some of this will work. If it doesn’t, it might force information off-line altogether. The Newport Daily News in Rhode Island, which faces virtually no competition from other newspapers, tried to drive readers back to the printed page. In June of 2009 it started to charge $345 a year for an online-only subscription and $100 for a print-plus-online combo. Within three months, Web site traffic was down 30 percent and single-copy sales were up 8 percent.

  WHERE INFORMATION GOES TO DIE

  Ultimately, I fear free information will result in less creation of information products. In France there were 8 percent fewer albums released in the first half of 2008, and music releases by new artists fell 16 percent. More than a dozen newspaper companies in the United States have filed for bankruptcy protection since the end of 2008. This includes the Tribune Company, which owns the Los Angeles Times and the Chicago Tribune, the Philadelphia Inquirer, and Freedom Communications, which owns the Orange County Register and thirty-two other dailies. The Rocky Mountain News of Denver, Colorado, which had been around since 1859, published its last newspaper on February 27, 2009.

  In July of 1999, 425,000 people worked for newspaper publishers in the United States. Ten years later employment in the industry had fallen by 150,000. Employment in other periodicals fell by 45,000 since its peak in 2000, and radio and television broadcasters too lost many jobs over the period. Yet for all the high hopes that dot-coms could replace crusty old-school media companies delivering the news, Internet publishing and broadcasting and Web search portals added only 15,000 jobs since their nadir in 2004. In July 2009 their total employment added up to 82,000—30,000 fewer jobs than at the peak of the dot-com bubble a decade ago.

  The raiders of the Internet seem pretty sure of the power of their cause. Among the cognoscenti surveyed in December 2008 by the Pew Project on the Internet and American Life, fewer than one in three thought creators and their lawyers would find a legal way to reclaim control over their creations anytime soon. “Copying data is the natural state of computers,” said Brad Templeton, chairman of the Electronic Frontier Foundation, an advocacy group for civil liberties on the Internet. Giulio Prisco, a former scientist at CERN who founded Metafuturing Second Life, an Internet services company, added: “You cannot stop a tide with a spoon.”

  Perhaps not. The media companies that rose in the twentieth century might be irrevocably doomed. Record labels might disappear. But I doubt that free information will ever be the natural state of affairs in a capitalist economy. In fact, I would wager that whatever the information economy looks like ten years from now, information in it will not be free.

  The last battle over free might serve as an illustrative precedent. Music piracy didn’t exist until the late eighteenth century because property rights didn’t cover music compositions. Agents from opera companies would attend the opening nights of their rivals to “steal” the best melodies and reuse them in their own dramas. Only in the nineteenth century, when Romanticism propagated the idea of author as genius, did composers complain. Hector Berlioz called bootleggers thieves and assassins.

  Technology changed the game. The popularity of the player piano in late-nineteenth-century Britain spawned the first recorded music industry for the masses, sheet music. By 1900 Britain had one piano for every ten Britons. Music publishers were minting money, selling sheets—known as dots—at one shilling and four pence apiece. Puccini and Handel were written for player piano, as well as more popular acts. Inevitably, the pirates came, using the new technique of photolithography to copy tunes flawlessly and sell them for only two pence.

  Then, like now, much of public opinion sided with the pirates. The British Parliament passed the Musical Copyright Act of 1902, which allowed for the summary seizure of pirated music. Still, music publishers floundered, confiscating hundreds of thousands of pirate sheets only to see more appear on the market. But in December of that year the police caught the “king of the pirates,” James Frederick Willetts, who ran the People’s Musical Publishing Company.

  Willetts made a strong defense of piracy in court. He argued that artists should not be given a free hold over their works because their talent was a God-given gift that should be used for the public benefit. He argued that piracy allowed the fruits of this talent to reach consumers who couldn’t afford the extortionate prices charged by the labels. But Willetts lost and was jailed. And the bootleggers were cowed out of existence. Information became expensive again.

  Ultimately, information cannot be free. It only looks that way sometimes. The quote by Stewart Brand that became the slogan of online freedom fighters has a prelude that acknowledges that information also “wants to be expensive” because of its enormous value to recipients. This is a reasonable proposition. Still, it leaves no space for the producer of information. Information can’t exist without her.

  CHAPTER SEVEN

  The Price of Culture

  DEMOCRACY SEEMS TO have taken over the world. By one account, at the end of the twentieth century 63 percent of the world’s population lived in democratic regimes, up from 12 percent at the end of the nineteenth. Democratic rule—giving citizens a choice in electing their political representatives—can mean different things in different places, however. It is an umbrella term used equally in the United States, where transfers of power between opposing parties are routine, and Zimbabwe, where the opposition is still regularly clubbed into submission.

  Still, a couple of variables can help us determine the quality of democratic governance around the world. The first is the quantity of resources—Kuwaiti oil, Congolese diamonds—at the disposal of rulers to purchase the acquiescence of the ruled. The other is the going price of voters, the value they give to their vote. This provides a precise measure of the legitimacy of the political system. The most corrupt countries are those in which voters are cheapest.

  The price of a vote is typically a function of a voter’s income. Poorer ones demand less because they deem their v
ote to be worth little compared with direly needed cash. In the 1996 Thai general elections, voters were offered an average of 678 baht apiece, but those in Bangkok were likely to receive twice as much as those in rural areas, who were poorer. In São Tomé and Príncipe, a poor former Portuguese colony on two tiny islands off the coast of West Africa, a survey of voters in the 2006 election found that the median price for a vote in the election to the national assembly was $7.10, but the average reached about $37 in the capital district.

  Price is also determined by what is at stake in the election. In São Tomé and Príncipe, vote buying took off only after oil reserves were discovered offshore in the late 1990s in the Gulf of Guinea—offering the prospect of a windfall. Not all races were worth the same. A vote for a president, whose power is mostly limited to the domains of defense and foreign affairs, cost merely $4.20. The real money was in the election to the national assembly—which wields most executive and legislative power.

  While the direct purchase of votes might seem a perversion of democracy, it has a long-standing tradition with substantial pedigree. In Britain, elections were bought at least as far back as the seventeenth century. The practice grew as moneyed members from Britain’s colonies and its new commercial class tried to break into the landed gentry’s monopoly of political power. In 1812, George Venables-Vernon, the second Baron Vernon, left his son-in-law, Edward Harbord, third Baron Suffield, “one sum not exceeding £5,000 towards the purchase of a seat in Parliament.” Such commerce prevailed until the Corrupt and Illegal Practices Prevention Act of 1883 imposed harsh penalties on those who gave or received bribes and established tight limits to campaign spending.