[ EEPI-Discuss ] Re: back to property rights etc

[Dan Krimm <djkrimbo@earthlink.net>]

At 2:28 PM +0100 5/28/05, David Tomlinson wrote:

>I take it you learned Coase in the context used in
>http://www.econ.ucsb.edu/~tedb/Courses/UCSBpf/econ230b.html

You make a lot of assumptions about me, don't you.

The text I used was "Microeconomics" by Robert S. Pindyck and Daniel L.
Rubinfeld (Pearson Prentice Hall, sixth edition).

Here, I'll quote you the passage (p.660):

Sidebar:  "Coase Theorem: Principle that when parties can bargain without
cost and to their mutual advantage, the resulting outcome will be efficient
regardless of how property rights are specified."

They refer in a footnote to:

Ronalkd Coase, "The Problem of Sociual Cost," Journal of Law and Economic 3
(1960): 1-44

The classic example given in class is that of assigning property rights in
water quality to a community downstream of a manufacturing plant that dumps
pollutants into the river upstream.  The community can then charge the
plant fees for pollution (i.e., costs necessary to purify the water for
drinking or recreation purposes) -- the plant can choose to pay the fees or
invest that amount in cleaning up the water, and if the fees are high
enough it will be cost effective for the plant to clean the water at its
end.



>However:
>http://ideas.repec.org/p/fip/fedmsr/142.html
>
>Abstract:
>"We examine the validity of one version of the Coase Theorem: In any
>economy in which property rights are fully allocated, competition will
>lead to efficient allocations. This version of the theorem implies that
>the public goods problem can be solved by allocating property rights
>fully and letting markets do their work. We show that this mechanism is
>not likely to work well in economies with either pure public goods or
>global externalities. The reason is that the privatized economy turns
>out to be highly susceptible to strategic behavior in that the
>free-rider problem in public goods economies manifests itself as a
>complementary monopoly problem in the private goods economy. If the
>public goods or externalities are local in nature, however, market
>mechanisms are likely to work well. ; Our work is related to the recent
>literature on the foundations of Walrasian equilibrium in that it
>highlights a relationship among the appropriateness of Walrasian
>equilibrium as a solution concept, the incentives for strategic play,
>the aggregate level of complementarities in the economy, and the problem
>of coordinating economic activity."
>
>The choice is between a private monopoly and free riding by the public,
>on pure public goods (non-rival, non-exclusive). And transaction (legal)
>costs are huge, and are to varying degrees on the public.

The point being made in this passage above is about enforceability of
rights.  I totally agree that content-control rights become unenforceable
online (unless we impose Draconian content-control enforcement which I am
not willing to accept).

However, the argument breaks down in the face of "domain-access control"
which is where blanket licensing comes in.  Point of access to online
services remains an entirely viable method of rights enforcement, and this
is why I argue for blanket licensing regimes.



>> Sure there are limits:  the market decides what it will use or not, and
>> that determines the remuneration to the creator (or assigned rightsholder).
>> If the market doesn't use (and remunerate) much, then the artist has less
>> resources to create more, and even a filthy rich artist can only create a
>> finite amount of works per unit time.
>>
>> But yes, it is all about collective licensing.  I stand by that as a viable
>> option.
>>
>The goods are non-rival, therefore everyone can potentailly consume the
>same work.

Yeah, so?  That's part of the beauty of a catalog-based system with flat
fee access and unlimited use.  Once you're in the system, it "feels free"
to the consumer, but with proper oversight of aggregate usage numbers and
proportional royalty allocation the artists still compete in a market
paradigm for their fair share of that royalty pool.



>> There *is* a market:  rightsholders get remunerated according to popularity
>> of the use of the work.  It's proportional in the same way that aggregation
>> of individual transactions adds up to total social/market value.  (And the
>> overall rates are collectively negotiated -- collective negotiations still
>> constitute a market.)
>>
>A market consisting of Government and the Monopoly (Collective) Rights
>Holders, where the public can't effectively vote on their willness to
>pay a tax or otherwise send price signals.

Ah, you're objecting to collective negotiations of license rates and terms.
But, markets apply when you're dealing with large collective organizations
just as much as they apply with individual persons.  The "buyers and
sellers" here are simply large collectives that represent large
constituencies.  Kinda like a representative democracy with legislatures,
etc.

What's important here is to make sure all constituencies have
representatives at the table, and that's what's missing today.  But there
are beginnings of possible solutions, such as the CD Baby digital
distribution license that allows some indies to get into iTunes and other
service catalogs.  The CD Baby DDL is in fact a private voluntary
collective license.  If it becomes very large, it may come under anti-trust
scrutiny, and then it would fall under government oversight/regulation,
which I think is entirely appropriate.  Perhaps Derek might then allow
members a voice in the administration of the license (i.e., rate
negotiations, etc.) -- in fact, the government may require it, though I'm
not exactly sure (ASCAP is ostensibly a member-owned organization, though
BMI is not).



>> Remember, I described a service model that does not entail a universal tax,
>> merely a surcharge on a dedicated music service which customers may
>> subscribe to or not as they wish, voluntarily.  Not all collective
>> licensing is compulsory and not all of it entails taxation.
>>
>This service model would have to exist in the context of free
>availability of content at a lower level of service (P2P). I don't know
>how effective this could be as a source of revenue for artists.

Oh, so now you're making the RIAA argument that you "can't compete with
free"...

I think this is far from demonstrated in reality.  The classic example is
bottled water (which is often no different from artificially purified tap
water).

I would contend that it is very likely that a well-designed service with a
full catalog could very well compete with free.  But to get a truly full
catalog under at-will licensing is a pipe dream.  Full catalog requires
blanket license, plain and simple.  Without the full catalog you get a big
barrier to entry (i.e., scarcity is imposed on the market again), and the
oligopoly retains its market power.



>A hypothicated tax on a music service implies exclusion of content from
>open distribution.

I'm not suggesting a tax on dedicated music services.  I'm suggesting that
a collective of independent musical recording artists (or even "all" such
artists) negotiate privately with private dedicated music services (such as
Yahoo/LAUNCHcast) as to use-based royalty terms that would be incorporated
into the service fees.  The CD Baby DDL model, except as a member-owned
collective with genuine representation of the constituency from the bottom
up.

The only involvement of government would be in enforcing the terms of the
private contract, and perhaps some judicial oversight of the collective
organization due to possible price-fixing claims (as with the ASCAP and BMI
consent decrees -- you're aware of these, right? -- if not I can explain in
more detail later).

And then, I would also allow free "ripping" of content from the system
(though with a well-designed system there would be no need to do this for
purely entertainment purposes -- only for the creation of derivative
works).  The point being that the service offers a value that is worth
paying for, and anyone who wants to use the content outside the service (or
some similar service) will incur opportunity costs that reduce the value of
the free use compared to the value of subscribing to a paid service.


Taxes as such only come into play when talking about a fee collected for
Internet access per se, rather than a dedicated music service.  However, in
that case rates and terms are generally negotiated in an arbitration
process called a "CARP" in the US.  (Copyright Arbitration of Royalties
Panel -- they twisted it around like this to avoid the unfortunate acronym
"CRAP"...)

If this were the solution, then it would only apply to online use, and all
fair use offline would remain the same.  Also, once the flat fee surcharge
were paid (as part of an ISP subscription), usage would not be metered for
micropayments.  Once again it would "feel free" to the consumer, and the
usage patterns would determine proportional royalty allocations the same as
it would in a dedicated music service.

I would be just fine with such a mechanism, both as an artist (RIAA hates
it, because it reduces their market control and they probably think the
royalty rates would fall -- they may be right, and that may be good since
CD prices are probably artificially high) and as a consumer (it's a good
deal: full catalog, no usage charges, all-you-can-eat model for a finite
and predictable budget).



>> Promotion *is* distribution, online, at the end of the road (we're still in
>> transition, but we need to prepare for the endgame).  The only way to deal
>> with it is to merge the two characteristics in a single integrated system.
>> It can be on a per-service basis or it could be on a per-Internet basis.
>> One way it becomes simply a license fee incurred by the music service, the
>> other way it looks like a sort of universal tax.  Personally I prefer the
>> dedicated service model, but if we can't get there I'd accept the
>> full-Internet model (as long as the auto-recommendation engines work well
>> on a distributed basis).
>>
>
>It is possible that returning to 'Commercial Exploitation' model of
>copyright could generate revenue. After all it worked before private
>distribution, but it too will have to exist in the context of private
>distribution (P2P).

I don't know what you are referring to here, so I can't comment.  I'm
assuming in all of this that P2P will be legal as a form of fair use.



>> Only big stars can make living off of live performing.  I know, I've done
>> the dance myself and danced with others as a sideman.  Here are some
>> structural problems with it (ignored by John Perry Barlow, of course -- the
>> Grateful Dead were a star act in the live performance world, massive
>> celebrities):
>>
>>  - Small venues can only hold a moderate number of audience members, thus
>> limiting the productivity (dollars per performance) of live performing.
>>
>Life's a bitch

Ain't it though.  But that's not the point.  If it's a bitch for the artist
it's also a bitch for the audience because they will get to hear fewer
artists.



>>  - Getting into large venues requires also being able to guarantee large
>> audiences, and only stars can do that without significant risk.  (Venues
>> tend not to bring their own regular audiences.)
>>
>Risk varies with venue size from small to large as does income. A
>performance could be predicated on advanced ticket sales.
>
>Some venues bring their own audiences e.g. Jazz Club.

Some isn't good enough.  We're not creating a market for jazz (or only
certain forms of jazz, to be specific), we're trying to create a market for
all music (if not all intellectual content) that does not systematically
distort the balance of culture.

If the model works better for some kind of music than others, it will
constitute a skew on the cultural balance at the end of the day.  That's
precisely what I'm trying to avoid here.


>>  - If your audience is geographically spread out, then it may be impossible
>> to get them together in one place at one time (everyone has different
>> schedules) in order to make a profit from live performing for them.
>>
>Large cities concentrate audiences, people can and do travel to venues.

Some of them do, most of them don't.  Again, I'm aiming for a market model
that reaches the entire audience, not just a few that live in urban areas.
The differentiation in regional circumstances will create a systematic skew
in the market response, systematically skewing the balance of culture.



>>  - Depending on the scheduling of gigs, travel and accommodations on the
>> road can more than eat up performance fees.  The grass-roots live
>> performance market is highly unpredictable, spotty, and inefficient, with
>> tons of friction in the market.
>>
>You can use the Internet to comunicate and co-ordinate with your fans,
>live performances and costs can be predicated against online sales.

But it will never reach the productivity potential of recorded music that
avoids all of the constraints of live touring.  Recorded music ultimately
has a potential to reach the *full* audience.  Live performing (*never*
will come anywhere close to that, and it will be skewed in ways that don't
have anything to do with the purely esthetic nature of the music itself.



>> Perhaps you'd like to see all non-star musicians get into the T-shirt
>> business.  But then they are in the T-shirt business and not the music
>> business.  That's the celebrity model right there: tangential value, not
>> direct value.  It skews the market incentives very badly.  A artist with a
>> great T-shirt and lousy music will sell more T-shirts than an artist with
>> great music and a lousy T-shirt.
>>
>That depends on the fans desire to be associated with good/bad music
>and/or good graphics.

Which has nothing to do with the desire of fans to listen to good/bad music
on its own terms.  Exactly.



>> As a musician, I want to get value because of the great music I make, and
>> not have to depend on getting into a completely different business selling
>> T-shirts (or whatever other tangential value you propose).
>>
>You can have direct interaction with your fan, online and in person.

So what?  That doesn't remove the skewing effects on the market.  It still
makes the market based on factors other than the direct merit of the music
itself.



>> Without some sort of direct compensation for the *recorded* music, I'm
>> screwed, plain and simple.  Getting a fair return for recorded music is my
>> only hope for self-sufficiency as an independent musical artist making
>> high-quality music that appeals to a moderately sized audience.
>>
>If you have a moderately size audience you should be able to get
>compensation from live performance, however nothing prevents direct CD
>sales, or even a tip jar.

Tip jars have been tried, and it's well known that they don't work.  They
fall prey to the same statistic in the non-profit donation world: about 10%
of the market receiving value from the service actually bother to donate
anything to the endeavor, at most (I'm talking about public broadcasting,
here, for example).  Most consumers of voluntarily presented services are
free riders.

And as I've just noted in comments above, if I have a moderate sized
audience, then in order to get money from live performing I am dependent
upon the characteristics of the venue market for the kind of music I want
to make, and those characteristics very dramatically across different types
of music, for reasons that have nothing to do with the merits of the music
on its own terms.

I think you are on pretty shaky ground trying to claim that "If you have a
moderately size audience you should be able to get compensation from live
performance" in an a mount necessary to pay living expenses as well as
travel and other touring expenses themselves.

Where does this "should" come from?  I've seen it from the real world, and
I can assure you that quality does not match up with venue market in a way
that is devoid of fundamental non-merit-based skewing effects.



>> Who said we were talking only about *popular* music?????  Geezes pieces.
>>
>Popular not pop (I didn't want to get in the Pop/Rock/Rap and endless
>genre. In this context Jazz can be seen as popular, it has a market.
>
>> I make progressive jazz and free improv.  I've worked with talented
>> singer-songwriters who make music that is not designed to get airplay on
>> ClearChannel radio.  There is an opportunity here in the new-technology
>> platform, but only if recorded music retains remuneration rights.
>>
>The Internet would enable special interest webcasts, downloading,
>community forming etc.

How exactly would it do that today?  I mean, I agree that the technology
has that potential, but the tools available today haven't made a
significant difference in the rate of success among grass-roots performers.

My arguments are that it would take a very specific design of a service
model to enable the full potential of Internet technologies, and that
blanket licensing would be a pre-requisite to legalizing such a
service/market design that can get all the way there.



>> Non-rival goods, yes.  Also non-excludable goods.  Add the two together and
>> you get public goods:
>>
>> i.e., No Market
>>
>> In order to create a market, you have to assign some rights.  Control
>> rights don't work (that's been part of my point from the beginning), so
>> fall back to remuneration rights.
>>
>The only markets that would remain, is a commercial rights market or a
>tax funded market (on whatever the tax is imposed or hypothicated).

So, what's your point here?  What are you saying you want, and how exactly
would it work?



>> You have, say, free P2P systems.  However, those who can pay for the extra
>> added value of an integrated service will still be attracted to the paid
>> service and generate royalties to the artists or assigned rightsholders.
>> (I'm assuming here that only the few acts that still crave fame and
>> celebrity will assign their rights, other DIYers will retain them.)
>>
>> I'm sensitive to the difference between an elite market and the mass of
>> people in developing nations that cannot afford elite market prices.  So
>> let them have it for free legally.  But charge the premium service.  Or,
>> create taxation in the developing countries that is appropriate to their
>> income levels, but still allocate from collective pools according to use.
>>
>> There are solutions to the inequities of IP that can be found without
>> destroying IP outright.  They are no more impractical than obliterating IP,
>> both would be difficult to push, given the strength of the IP industry
>> lobbies.  I don't see that your model is any more inevitable than mine --
>> in fact, both are tough hills to climb.
>>
>You may be able to maintain 'Commercial exploitation' rights, and these
>may have sufficient value.

Pleas elaborate, you're not being clear here.  Are you talking about
sponsorships and fees for advertisements?  That's basically a
tradsemark.brand issue of course.

But once again, it depends on the music (rather, not even the music but the
musician again) being useful to some ancillary commercial purpose.  It's
the celebrity model all over again, which is what I'm trying to get away
from because of its pernicious effects on the balance of culture.



>> You don't understand the reality of live performing as I've noted above.
>> This is not a viable market for anyone but the big stars, anyway.  Barlow
>> is an elite and I view his ideas as dangerous for artists taken as a whole.
>> In fact, Barlow makes his music money from publishing royalties (he is a
>> co-author of several Dead songs, and he gets mechanical and performance
>> royalties from sale and license of Dead recordings).
>>
>> Your whole premise seems to be based on a fallacy.  If we rely on live
>> performance only, then we have absolutely given the market away to the
>> stars and celebrities only.  The grass-roots will *never* climb up into the
>> game without revenue from recordings according to actual merit.
>>
>>
>Commercial exploitation rights may well be enough, if not the live
>market is all you have left. Rap managed to emerge with active
>resistance from the Music Industry.

Only because it learned how to play their game.  That was what the New
Music Seminar conferences in the 80s were all about.  So why didn't free
improv learn the same game, for example?  Because free improv doesn't fit
into the celebrity game, because it';s not about personality and celebrity
but rather about music in and of itself, and that doesn't play the
celebrity game very well.

So in effect you're saying that music should adapt itself to the arbitrary
features of the market rather than trying to design a market that addresses
all music on its own terms.

No thanks, I'm not interested in adapting my art to a commercial market --
I'll just stop doing art at all and do something else for a living (and
scrape a little art together once in a while in the cracks as an avocation,
and if you like what I do you'll have a damn hard time finding it because
I'm not making much of it).



>> "Sell celebrity" is what you're saying here.  That's not good enough for
>> me.  I want to sell the art, not the artist.  The artist is not what is of
>> value to society, only the art is what is of value to society.  The artist
>> is of value only as long as the artist continues to make valuable art.
>>
>That's just a model for the record companies to continue to operate.

Yeah, but what about all the DIYers who shouldn't be hooking up with record
labels anyway?  I'm trying to create a market that works for them too, and
it should be possible with current technology, as long as recordings retain
market value in and of themselves.




>> I think you are at the very least premature in calling the game at this
>>time.
>>
>Sixty million people in the USA using the original Napster.

In a transitional snapshot in time.

They were suing it not because it was free, but because it was easy and had
the potential of a full catalog.  The "because it was free" explanation is
highly overrated.  The licensing regime has precluded the most powerful
market models from even being tried.



>> The social contract may be a myth, but it could actually become reality.
>> Especially because the rhetoric of the social contract has been so deeply
>> embedded in the conceptuality of the present day.  If the social contract
>> became a reality, it would be good for society, because the star system
>> distorts culture in negative ways.
>>
>> The problem with new tech is that content is now non-excludable (and making
>> it excludable would be too Draconian to contemplate).  Content does have
>> social value, and without a market expression for content in and of itself
>> society will have less of it and less quality of what it does have.
>> Culture will suffer (it has already suffered because the market has been
>> hijacked by non-content-based incentives).
>>
>> I'm not suggesting my view is the low-hanging fruit by any means, but it is
>> the *right* thing to do for society, for artists, and for the balance of
>> culture.
>>
>>
>
>Solutions: (Decreasing in desirability, but can be combined)
>
>Recorded music free-ride as promotional material for live performance
>and direct to the public sales.

This totally sucks.  It basically changes nothing in the star-driven
culture balance, and that would be a travesty.



>'Commercial Exploitation' rights as per Jessica Litman (the original
>effect of copyright), but in the context of availability of
>non-commercial distribution. i.e. Commercial use of recorded music
>attracts a Licence Fee.

I'm not sure I understand you, or in what context you're referring to Litman.
As long as the licensing structure allows all comers into the game on an
equitable basis, that seems fine to me.  (That's where the all-comers
compulsory aspect becomes important: in removing barriers to entry for
small fry for paid markets.)  But please explain what you mean by
"commercial exploitation" rights and how they differ from, say
content-control rights or performance/usage rights.  (I'll admit, I haven't
read Litman though I know she's offered some interesting ideas to consider.)



>Taxation on various services, a Music Service, Internet access etc.
>(Compulsory Collective Licencing).

There are a whole variety of options here, so I would caution against
lumping them all together.  There are at least four binary dimensions to
collective licensing:

 (1) Compulsory or Voluntary
 (2) Internet or Dedicated services
 (3) Temporary or Permanent
 (4) Distribution or Derivative use

That's 16 combinations, though not all of those combinations necessarily
make sense as such (and only half of them are "compulsory" by law as
opposed to market-incentivized -- but frankly, I think the practical
differences in implementation are minimal, even though some people think
the distinction makes all the difference from an ideological point of view).


Dan
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