Piracy/File sharing - Why aren't songs, movies or ebooks given for free (+ads) like TV?

Question

1. Question: Why aren't songs, movies or ebooks given for free (+ads) like TV?

• i. Sub-question: Every minute, people are pirating, and there is no stopping that. If people see 0.99 for a song on iTunes and 0.00 for a song on a torrent site, I don't see anything stopping majority of people from going to that torrent site in the same way I don't see anything stopping them from going to a library or asking a friend to borrow a book instead of buying the book in Borders or taping a song off the radio. In particular, there's betamax. It was thought illegal until this case or something.

• (Anyway that's about legality not economic benefit/loss. Also betamax is more like is or positive rather than should or normative, I guess.)

• So, why don't companies, like the RIAA or MPAA, release their songs, movies or ebooks for free but put in ads kind of like how cable TV was/is done? In my opinion, companies incur a huge opportunity cost

  eg 'JK Rowling has lost millions of dollars, because she refused to let Harry Potter come out in ebook form. Newsflash: you can get ebooks of all the Potter books from pirate sites. She didn't cater to her fans, so her fans catered to themselves.'.

• ii. Sub-question: What I guess is that they think they can actually stop piracy with things like DRM or scaring people into believing that they will be caught even though such is unlikely so as to keep making money on iTunes, Netflix or whatever.

• However, I read that in a documentary, Chairman and CEO of the Motion Picture Association of America (MPAA) Glickman 'concedes that piracy will never be stopped, but states that they will try to make it as difficult and tedious as possible.'

• So he ADMITS piracy cannot be stopped, which makes my guess wrong. So what, are the RIAA and MPAA actually irrational?

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2. Question: What are some economic concepts or theories involved in file sharing/piracy besides opportunity cost and free rider problem?

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Notes:

1. This can also extend to games, apps, etc.

2. To clarify, I don't mean to ask why songs, movies and ebooks are not given ONLY for free. They should continue to be given for payment since there will still be demand. If people want to buy CDs, DVDs or ebooks, attend concerts or go to cinema before songs, movies and ebooks would be given free, they would likely not want to do less if ever songs, movies and ebooks would be given free, I think because it seems that if people like the cinema or concert experience, don't have Internet access or like smelling books, they will continue to purchase as much.

3. My question is not 'Why do people go to netflix instead of torrent?', a question focused on the consumers given the law and the companies' decisions. My question is instead 'Why aren't songs, movies or ebooks given for free?', a question focused on the law and the companies' decisions given, well:

   Pirate Coelho's 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'

4. Btw I just discovered artificial scarcity.

Answer 1

It's called a Principal-Agent Conflict.

The RIAA/MPAA act as agents on behalf of the people who actually produce content (and consequently end-consumer value).

To maintain relevance to their principals', the RIAA/MPAA must signal value to them (i.e. claim loudly and repeatedly that they do something good for them [regardless of the validity of that claim]).

Firstly, this signaling is demonstrably an example of the Principal-Agent problem, in that it diverts resources away from actually advancing the principals' interests, but more so in that it creates a perverse incentive for lobbying groups to fight imaginary fires.

The impact of piracy on the broad economy is believed to be near zero, so IP laws are effectively just rent-seeking $^{[2]}$ anyway.

Whether or not that particular type of rent-seeking is always a drain on the broad economy (in that it distorts markets producing deadweight loss in excess of the externalities corrected) is up for discussion, though it is known to be possible (insofar as the existence of an optimal tax [or government induced market distortion] is necessarilyy proof of the existence of an excessive tax).

Answer 2

What I don't see here is an economic model, however rudimentary, that will allow us not to definitely answer the question but to clarify what are the critical issues. So here's one (totally rudimentary):

Consider a work of digitized and mass-commercialized content $x$, like a song, a movie, or a book. Assume that in the short run, demand (desire) for it is fixed (unknown but presumaby estimable by past experience), $Q_T(x) = \bar Q_x$.

The agent that can trade $x$ contemplates two options:

Scenario $A$ : sell $x$ at price $p_x$ and incur costs $C_{pir} > 0$ to fight piracy.

Scenario $B$ : offer $x$ for free subject to the consumer being exposed to advertising, while in parallel sell $x$ at the same price $p_x$ free of any advertising. Assume that under scenario $B$, pirated copies will still be offered, touting that they are free of cost and free of advertisement also. But we do not fight piracy here.

For scenario $A$, denote $Q_{p,A}$ quantity sold, $Q_{pir,A}$ quantity acquired through piracy by the consumers.

For scenario $B$, denote $Q_{p,B}$ quantity sold, $Q_{f,B}$ quantity acquired from the producer for free and $Q_{pir,B}$ quantity acquired through piracy. Denote $p_a$ the advertising revenue per copy.

Under the assumption that total desire for $x$ s fixed, we have

$$\bar Q_x = Q_{p,A} + Q_{A,pir} = Q_{p,B} + Q_{f,B} + Q_{pir,B} \,.\tag{1}$$

To evaluate financially the two scenarios, note that production cost has been already incurred, so it is sunk and out of economic consideration. Abstract from taxes and also from intermediaries. Then profits are:

$$\pi_A = p_xQ_{p,A} - C_{pir} \tag{2}$$

$$\pi_B = p_xQ_{p,B} + p_aQ_{f,B} \tag{3}$$

The purely economic argument for scenario A is that by fighting piracy we force more consumers to buy the product, than "otherwise". But the "otherwise" in this argument is not scenario $B$: it is the "we do not fight piracy but we also do not offer $x$ for free+ads" alternative. But we do not care about this scenario here. Still, let's accept the possibility that under scenario $B$, perhaps some consumers that under Scenario A would have paid for $x$, now they opt to acquire it for free and suffer through the advertisements. So let's accept for this reason, that

$$Q_{p,B} \leq Q_{p,A}. $$

To go for scenario $B$ we want

$$\pi_B > \pi_A \implies p_xQ_{p,B} + p_aQ_{f,B} > p_xQ_{p,A} - C_{pir} $$

$$\implies C_{pir} + p_aQ_{f,B} > p_x[Q_{p,A} - Q_{p,B}] \tag{4}$$

Condition $(4)$ gives us the factors that we should quantify and estimate:

1. How much fighting piracy costs?
2. How large will be the reduction in quantity sold when it is offered side-by-side with the option "free+ads"?
3. What kind of revenue from ads can we expect to have?

Note that if fighting piracy costs a lot, and if the reduction in quantity sold is not expected to be large, then it may be the case that even a modest advertising revenue would be enough to make Scenario $B$ more profitable.

But question 3) also reveals that the picture painted above is for those artists whose popularity can more or less guarantee that advertisers will be willing to pay in order to be advertised next to their creations.

But even for them, we should not underestimate the ethical push-back (however hypocritical it may appear), for linking, actually bundling, advertisement and art (even fully commercialized art) so closely. Even consumers may be repelled by it, which may put the fame, and so also the commercial brand, of the artist in serious jeopardy.

And in fact, it is my suspicion that this is one of the main reasons why the scheme contemplated by the OP has not become the norm, at least not yet: businesses believe that consumers don't want to feel that their art consumption is so much like any other consumption (because, hey, it isn't). Assuming that this is the case, is this irrational from the part of consumers? No. What goes into my utility function and increases/decreases my utility is the last shelter of individual choice. Rationality comes after that.

Answer 3

The simple answer is that they don't think they would make as much money.

In many countries illegally downloading music or movies is getting harder and harder. The recording industry has achieved this by persuading governments to instruct the ISPs to block torrent sites, torrent proxy sites and sites that list proxy sites completely so no one can access them.

Also, a lot of people who legally download music/movies do it more because of the convenience despite the financial disadvantage. If you own an iphone or ipad, for example, it is much simpler to download what you want from itunes or subscribe to netflix than to find a way to get it illegally.

Finally, your example of cable companies also seems a little odd as you always pay a subscription fee as well as having to watch the ads.

Answer 4

Firstly there are services like this in Spotify, and even radio and tv, but it sounds like you are talking about downloading the material with ads in.

That causes a problem. Revenue from ads relies on giving many ads to many people. Each time you listen to a song the provider needs to be able to provide a new ad. If you download a song or book with ads then those ads are fixed. So you might listen to it 100 times but no advertiser will pay 100x as much because it is not valuable to give the same ad to the same person many times.

Secondly you would need some added security on the files to make it hard to simply remove the ads. That is easily as difficult and expensive as DRM anyway.

The third problem is ads are annoying. I think for many people an ad would be more incentive to pirate than a small cost. Early music DRM eventually failed (in part) because it was to motivate piracy in itself. Xkcd had a nice comic on that idea.

And that leads to the forth point. Much of economics is about equilibria and long run expectation. In reality everything takes time and big bold change is even harder to start. Initially music was DRM protected but they eventually realised most people will pay 99c to avoid the hassle of piracy, but will pirate to avoid DRM Nothing changed in the economics, it just took time for the industry to realise that was a better way yo do things. There may well be a book publisher out there working on an ad supported eReader library, but it will take time.

To put the price of a song in context:

The US median hourly wage is \$17.09¹, the median song length of the top 100 iTunes songs is 223 seconds². So 50% of US workers earn \$1.06 in the time it takes to play a song.

Answer 5

Isn't this mostly an issue of pricing at a level where most people feel it's worth paying to avoid the hassle (and potential legal issues) of piracy?

Take music singles for example: when I was a teenager (late 90's), a CD single cost £3.99 in the UK. When it became possible to download songs for free that someone else had ripped and uploaded, many people started doing that. When iTunes came along and you could legitimately buy the same song for £0.99 (later £0.79 I believe - it may have gone up again since), I had no objection to paying that amount, and managing an iTunes library was all-round easier than random mp3 files on my HDD.

Nowadays I use Spotify, and £9.99 a month seems reasonable considering I stream music for 6+ hours a day at work. But I understand the industry is rallying against Spotify because they aren't getting enough royalties from it (boo hoo).

The issue I have today is that the same price correction has yet to happen for movies and eBooks which are, IMO, way too expensive in digital form. Take Kindle books for example, a new release can still cost £6 or £7 - the same price I could get the printed copy from my local superstore. How can they possibly justify charging the same amount when it simply cannot cost them as much for a digital copy as the printed media?

Movies are even worse: services like Google Play, Apple and Amazon charge (I believe) £5 - 7 to rent an HD movie for 48 hours. In a lot of cases I could buy a physical version of the same film from a shop for £10 that I can play as often as I like. A one-off digital consumption should be significantly cheaper than an unlimited-use physical version.

When movie studios and book publishers realise that their products no longer attract the same premiums they used to, and adjust prices accordingly, I think the number of people prepared to pirate will be pretty small, and limited to those people who will always take free over paid-for, even if there is effort/risk involved. If eBooks were £2-3, or movies £1.99 to rent for 24 hours, I'd probably pay that several times if I wanted to re-watch the film later.

Answer 6

I will only address e-books (and other text), and discuss the technical issues. These technical issues make e-books distinct from other electronic media.

An e-book is a compressed file that contains what are essentially web pages (each a “chapter”), with meta-data in XML. Typical size is small (a couple megabytes), with size possibly increasing due to images (the standard is 300 dpi, versus 90 for webpages).

They are often read on e-readers, which have small screens, and typically used not connected to the internet. (Download the file once on wifi, read on the bus.) Any ads have to be embedded into the file on download.

The problem is where would they go? Publishers and readers would explode in anger if content was mangled if ads were put in the middle of content - breaking formatting. You would need a special e-reader to allow for banners that are not connected to the book contents. (An app on a tablet could do this easily, but existing specialized e-readers are engineered to only display the existing file format.) Given the existing small screen size on most e-readers, readers will be unhappy with the reduction.

There are ads in books - typically for other books, at the beginning and end. They are skipped over by default by e-redears, and easily skipped.

The other issue is that books are often bought years after publication, and read much later. What advertiser has products they want to advertise that are not time-sensitive? The only common item is other books, which is why they already appear in books.

(Newspapers and magazines are read in a timely fashion, and are ad-supported. Typically not enough revenue to make them free.)

The only model that deals with the timeliness problem is the monthly “library rental” model. This model ensures that the e-book was in touch with the service servers in the past month. This model could allow for ads. However, the ads would be used to reduce the cost of the rental subscription, and the publishers would be paid on a usage basis (as those models do now).

The library rental service would need to solve the technical problems of selling ads, and would need readers willing to put up with them. I have not yet heard of any attempts to do so.

Answer 7

This analysis also ignores non-dollar prices of piracy and the fact that pirated goods are not perfect substitutes for the legitimate good.

In the real world, consumers do not have perfect information and have to spend valuable time searching for pirated media and filtering through versions that no longer work, have no seeders, or are otherwise inadequate (terrible cams, virus laden, mislabelled, etc).

In addition, legitimate media may come with other features such as album artwork and proper metadata. Some consumers may care about this, and replacing this data incurs a cost.

Finally, legitimate goods can be more convenient and allow for immediate gratification. You need to discount the value of a pirated song a few hours from now versus a song right now. Legitimate media is backed by extensive distribution networks and can usually be accessed quickly and while away from a desk (e.g. downloading from Google Play/iTunes on your phone, or more recently streaming services like Spotify/Netflix)