Piracy is not market correction. There is no reason a particular product has to be priced relative to the marginal cost of production. According to his logic, an audio cd should cost less than a dollar.

Producers can price their product however they want. Consumers have the choice to buy it if they can afford it. Trade happens only if both parties think that they are getting value out of it, econ 101.

Unfortunately in digital age, a consumer can get the product by illegal means even if they can't afford it and producer doesn't really have a way to stop this illegal behavior.

I am surprised that this post reached top of hacker news.

The music hydra does not just have every album, it has most versions of every album. When what.cd and waffles.fm are shut down, they will be replaced by four sites, possibly more.

For example, for The Beatles album Let It Be, the following editions are available, as high-quality MP3s and FLAC (currently just FLAC for the vinyl rips, which is fine):

24 bit lossless vinyl rip of the 1970 Apple record. 24 bit lossless rip of 1982 Japanese vinyl. 1987 Parlophone CD. 2004 Apple vinyl rip (16 bit lossless, alas). 2007 Purple Chick Remaster. 2007 Dr. Ebbetts Remaster. 2008 Dr. Ebbetts Remaster. 2009 Apple Remaster.

When the music industry can offer a product superior to piracy, they will stand a chance. When the marginal cost of production falls to zero, classical economics ceases to function and extra-market restrictions are needed to force the continued existence of the market.

You don't even need marginal costs to be zero - external utility factors are required for even the most basic of markets to function, laws being the primary example, but there are others.

For one, most people feel bad when they steal. They feel embarrassed when they are caught, even before they are punished. The likelihood of being caught stealing a physical product is rather high, and once you layer on the punishments, which are rather large, it's enough to make most people refrain from shoplifting.

Unfortunately for digital media, stealing and getting caught are both extremely impersonal acts, so there's very little embarrassment or guilt involved. And getting caught is so rare that the financial penalties are all but meaningless.

In my opinion all of these industries need to stop worrying about what is "due" them for their hard work, and start worrying about what the optimal price points, payment systems, and purchase/discovery paths are to get paying customers. These may be very different from the current levels, and may require radical steps: I don't think it's out of the question to offer vastly different prices, going as low as you can imagine, to different people based on how likely you think it is they will purchase the item. If it costs nothing to sell a digital copy of Britney's new CD, then it's crazy not to let someone buy it for $.25 if you're pretty sure they'd otherwise either pirate or ignore it.

These changes may end up meaning that margins and/or revenues are significantly cut from the pre-Internet era, but that's life. And if things do get so bad that certain types of information can no longer be produced, so be it, the market has spoken.

It seems software is in a position where the existing laws (or the enforcement of such laws, depending on how you look at it) are not adequate to sustain the market.

> Unfortunately for digital media, stealing and getting caught are both extremely impersonal acts, so there's very little embarrassment or guilt involved. And getting caught is so rare that the financial penalties are all but meaningless.

I think your assessment is absolutely spot on and I couldn't have said it better myself. Right now other than my own personal guilt, there is absolutely no reason for me not to pirate software. The chances of getting caught are extremely slim. I know many people who use pirated software extensively in a business environment and even there they stand almost no chance of being caught - and even if they were there would be very minor consequences. I feel that it's getting to the point where to be competitive in the market you have to use pirated software. How can you stay competitive when those you're competing against aren't competing on a level playing field.

I see only two possible solutions to the problem: 1) Some sort of miracle fix from the software industry - for example everything going to the web (in reality I doubt this will happen though) or 2) Actual enforcement and or the addition of new piracy laws so that piracy has some real consequences.

Problem there is that the vast majority of people - be they pirates or normal consumers- cant tell the difference between the quality.

(also, TBH it's complete bull because a large amount of ripped music is of pretty poor quality in my experience)

Or rather, the people pirating music because of a desire for higher quality is, I suspect, only a small portion of the group - most want a free lunch.

What happens when the hydra hits a million users? The cost of duplicating digital music is nothing and it doesn't take all that much bandwidth to run a bittorrent tracker. 2 million users? 10 million users?

For reference, it took about a month for what and waffles to get to the stage where the user experience was comparable to oink. I expect the hydra to grow even faster in the next round.

I give 50/50 odds that the RIAA will disintegrate before the hydra.

Besides, piracy is observed in other industries where there's no such difference (games, books), so I don't think that's the driving force.

The problem: economically, in many (most?) cases piracy is the rational choice. If I want a product that is sold for $20, but it's available for free (illegally) as a torrent, then I have to weigh the $20 savings vs. the risk of being caught and the financial penalty if caught. Since the risk of being caught is extremely small, well under 1% (practically zero in some cases), even a several thousand dollar fine is not enough to tip the scales in favor of purchase.

...until we consider morals, which in a sense can be considered to have financial value. To some people, the desire to "do right" is worth a lot, enough to make piracy "cost" more than the purchase. But for many more, the moral value of paying for a game/CD/movie/etc legitimately does not balance out the gain they would receive by pirating. These decisions depend on the particulars, obviously - if you like the artist, you'll assign a higher moral value to paying them, and if you hate a company, you're not going to give a second thought to pirating their software.

Put another way: do you feel $9 worth of bad when you pirate a $10 CD? If not, then you are making the wrong decision when you pay for it.

The original claim is correct, but in a roundabout way: piracy is (at least in part) a result of the fact that prices are higher than the moral cost that people suffer when they pirate them, and it should be exerting a downward price pressure to normalize the two factors (actually, it should be applying a downward pressure only until an optimal point - there are many subtleties involved in figuring that point out, and I'm not actually sure that we're too far off from it, but I'll leave speculation about that for another rant...).

Groups like the RIAA have tried to respond by raising the cost of piracy instead of lowering the cost of purchase (these costs include things like inconvenience, payment hassles, etc). It seems unlikely that they will be able to push the average cost to a pirate high enough, though, unless they can massively increase the enforcement rate, which is rather unlikely. So we're stuck in a bit of a market stalemate.

The upside (depending on your POV) of which is that it's pretty much a no-brainer for a lot of people to pirate a lot of stuff, and they're getting loads of value for very little cost.

Edit: Yes, I am suggesting that instead of price approaching marginal cost ($0), it should be approaching the less tangible "I'm a bad person" moral cost that people incur when they don't pay for something, plus the inconvenience cost of pirating, both of which are usually (but not always) nonzero. Note the difference between this and donation systems: the crucial difference is that the "I'm a good person" value that people get by donating to an artist is not equal to the moral value they lose by pirating, which is typically higher. I suspect it is better to charge for something, even if you know and accept that some people will pirate it, than to give it away for free and solicit donations.

I'm obviously being flippant: being a 'natural outcome given human preferences' does not render piracy immune from judgement as good or bad. As I'm sure you'll agree, murder is one perfectly natural activity (as evidenced by its prominence in regions of the world where the rule of law is weak) which is undeniably bad.

And I think piracy is bad. To those that think it is ok, I meekly and politely suggest that you make an effort to empathize with an indie game programmer whose work is pirated many times in excess of sales, leaving said programmer without the requisite resources for follow-ups or improvements -- to say nothing of personal compensation. The pirate (or filesharer) derives enjoyment out of the programmer's work, and yet the programmer has not been compensated, nor has he consented to the pirate's use. This is unjust. To claim that e.g. filesharing, where the activity is 'non-commercial', is not theft (and therefore not unjust) simply because the file is duplicated rather than moved is just as specious as to claim that an employee at Google should be allowed to take Google's proprietary source code and algorithms, leave the company, and to publish them on github or elsewhere, because 'sharing is caring', and because, hey, the original is still on Google's servers, right? -- without fear that they will be punished by the law.

Or put yourself in the shoes of a musician, like me (shameless plug: www.myspace.com/martindifeo), who after spending considerable time and energy and financial resources into his music, is faced with people telling him, with no apparent irony, on the one hand that they love music and respect musicians, and on the other that he (and other digital content creators) must simply accept that his music will be pirated. (The OP may not explicitly say it, but this statement is actually somewhat timid. For those who hold the view that music piracy is unavoidable, and therefore simply to be incorporated into the 'business model' or 'economic model', typically couple this view with a vehement opposition to the introduction of any legal or technological instrument to actually enforce digital rights, be it DRM, deep-packet inspection, graduated response, etc., thereby encouraging and, in effect, lobbying for the very conditions he claims are unavoidable.)

The OP proposes instead that the musician engage, in effect, in a PR campaign to win over the 'hearts and minds' of fans, in order to induce them to pay some 'token gesture' fee for the music even though, let's be honest, it's totally unnecessary as the OP himself states. I, for one, would like to think that my (ok...I'm being optimistic here) fans aren't idiots, and I certainly wouldn't relish the prospect of having to guilt-trip or otherwise trick them into pitying me enough to send me a few coppers. I'm not destitute, I wasn't e.g. born in the slums of Rio de Janeiro... I can't play the pity card very well. I don't want to take on causes, no matter how noble, simply to curry favour.

Call me crazy, but I think that the normal and correct way for transactions to occur in a modern, civilized, capitalist economy calls for the producer of the good to set the price -- without fear that his product can be appropriated unlawfully. If that price is too high, then consumers are free not to purchase, or, more pertinently, to purchase from a lower-priced competitor. And, no, by competitor, I don't mean to say TPB or the like, I mean another musicians who offers his music for free or at lower cost.

I challenge anyone to name a single instance in history in which widespread and systematic violation of property rights -- real or intellectual -- have led to anything other than net impoverishment. To believe that, simply because it is coupled to the technological marvel that is the internet, piracy and filesharing are ok and to be tolerated, is akin to saying that fusion bombs are 'ok' because, after all, they employ such exquisite quantum physics. Technological advances can be used to encourage good, civil behaviour, and for bad, disrespectful behaviour, like filesharing and piracy, where one minority constituency (the musicians and associated lines of work) are violated and left impoverished for the benefit of the majority (the consumers). AK47s can be purchased for a mere few hundred dollars in many regions, such is the wonder of modern manufacturing. Should we therefore all expect, to use a topical phrase, a bullet in the (mother*$%^ing) head? ;)

Just the thoughts of a concerned musician and onetime hacker...

My main problem with this ideal (and I suspect one of the key things that needs to be addressed for the digital economy overall to flourish) is "the price". It's all well and good to set a single price for physical goods, where marginal costs are nonzero, but the fact is, it costs nothing to distribute one more copy of a digital good, so any time a consumer is willing to pay even a single penny for a song/album/movie/etc. but can't do so because the producer's price is too high, the producer loses.

I don't have anything useful to say on the morality of any of this, because piracy is not going away no matter what anyone does - it's clearly "wrong", but the important question is what we should do about it, and I have yet to see any practical solutions other than accepting it as a cost of business and trying to maximize revenues anyways. DRM schemes are fine in theory, and I'd have no problem if a good one came around, but in practice they have all really sucked because they punish legit consumers with all sorts of annoyances, and they still end up getting cracked, so pirates continue to pirate. DRM is by definition an impossible technical problem to solve, so we can't expect it to be a silver bullet.

I've yet to see any mass exodus from any of the artistic fields that are affected by piracy, so can't believe that it's is killing anything, or that it will in the future. If I had to guess, more than anything else it's increasing the number of people that obtain a product, most of whom would never have bothered to buy it in the first place. At worst it's a few percentage point hit to the industries, but IMO those percentage points could be more than reclaimed by adopting a more creative pricing structure (I realize this is not something an individual artist could do, as it would require a lot of data to predict what someone would be willing to pay).

Beyond any of this, I don't think the small guys are hurting at all due to piracy, as they never had any sales to speak of to begin with. Taking music as an example (I've both been a musician and worked at a record company), before the Internet, things looked almost exactly as they did now: big musicians made a lot of money off of albums and selling their fame in other ways, whereas small musicians had trouble making rent and made most of their money from gigs and lessons. The only difference these days is that small musicians can actually sell a little bit of their music on the net to people that aren't physically at their shows - back when I was playing, a band without a major record deal was lucky if it sold any CDs at all, and worse, they had to pay for large numbers of them to get pressed up front. I knew very few, if any, unsigned artists that were able to recoup even the physical production costs of their CDs pre-2000, so I'd say things are slightly better for the small guy now, if anything.

Pirates, though, don't feel like they are thieves, and that's the point, not the economics. They think 'if I copy this' that other person won't lose his copy' and 'I wouldn't have bought that if it wasn't available for free'. These are the rationalizations people do, not 'its cheaper stealing this and risking getting caught than buying it'. Most don't think 'stealing' and 'pirating' belong together. Therefore, it doesn't really inflict the same 'moral' cost you suggest.

Moral values should come into play only at a meta-level, because we can only ever talk about economic models rather than the reality that economics doesn't actually describe.

Morals do function as a modifying factor in the model of the overall willingness of people to donate to artists for recorded music.

BitTorrent pirates are never ordered to jail, except maybe the Pirate bay guys, but I don't think anyone expects them to actually serve any time.

Some people do associate zero moral cost with piracy. They simply don't believe that music (games, software, etc.) should be paid for, and they're never going to, but they think it has value and want it anyways.

These people make up a loud piracy background noise that companies selling bytes need to learn to ignore, rather than focus on as if it's money taken out of their pockets. They are not lost sales, there's nothing that can be done to convert them to sales, and unless/until they change on their own, they won't stop pirating your stuff.

It's the rest of us, the ones that have a bit of money and feel bad when we take for free something that for whatever reason we feel deserves to be paid for, that need to be focused on.

Fixed price points do a spectacularly bad job at serving the sections of the market that agree that something should be paid, but don't happen to think the charged prices are reasonable. It's these people who are relevant to the argument I posted above, and there's a lot of money there that's being lost.

But the first thing that comes to mind is that no, these people shouldn't be ignored. This feels like saying "the very big thieves are always gonna be thieves, lets not worry about that. Instead, lets focus on the occasional thieves".

You might argue that since the items are not being lost, that doesn't have an impact, but I digress. There is no way to tell what would really be the pirate's action were him totally prohibited from pirating. What would he do.. pay for the stuff he likes, turn to a new hobby? Sit still thinking about all the things he is not doing? We can't know.

I sometimes upvote articles that I disagree with so that they'll live longer, because I want to see more discussion about them.

Does anyone else do this?

You come here for intelligent discussions, and would like to hear intelligent people's take on why a rant is bullshit. What will happen is that over time the intelligent people will leave. The reason there is such an intelligent discussion here is that the submissions are worth discussing - if they degenerate the people that make the intelligent conversation will leave, and you will have Reddit. I read through the article, expecting to find a subtle point, an intelligent analysis or a valid viewpoint. Something to make the article worth my time. When there was none I felt a bit cheated. If this happens enough I will leave.

What do you mean "in the digital age"? Ever heard the term "black market"?

Of course it's a market correction, it just happens to be an extralegal one. The laws of economics don't stop applying, and the market doesn't go away, just because a producer has been granted a government-enforced monopoly; no matter how appealing the notion is, making something illegal doesn't make it magically disappear.

I have little doubt that producers could find ways to successfully sell their products anyway, but that would require sucking it up and admitting that they have to compete on actual value, instead of relying on massive government market intervention.

Forget free, you will be hard pressed to find an example where black market offers a product which costs less. Black markets happen when consumer want something but they can't buy it legally (e.g. drugs, organs etc.)

It's confusing between the economic outcome in a perfectly competitive market, "price drops to marginal costs" with a normative statement "price should drop to marginal costs."

Every business article you need. Every way of gaining "competitive advantage" is a strategy for avoiding this outcome. If the moral imperative,price should drop to marginal costs, existed and was enforced, doing business would practically be illegal.

Of course, not everyone thinks free markets are morally preferable, so it's not really an imperative that applies universally.

Even a perfectively free market is not perfectly competitive. Perfectly competitive is a theoretical position used by economics, but it is theoretical. Perfectly competitive means profits are consistently zero, for example. If I have a nicer smile then the girl at the next shop and you prefer to shop at my shop, that's an "obstruction" preventing perfectly competitive markets.

The only markets that approach perfect competition in reality are commodity markets where, by definition, all products are perfectly equivalent.

This makes it even harder to get from "prices equal marginal costs if markets are perfectly competitive" to "prices prices should equal (or sometimes 'reflect') marginal costs." The implication is not just "remove government enforced barriers to competition" it is also "remove differences between you and competitors" and absurdities like "hire the same person as your competitors." Perfect competition requires perfect substitutes (competitors).

Imagine a "product" that uses necessarily non-uniform inputs: a seminar. One has Jimmy Carter speaking. The other has Mohammad Khatami. For this market to be perfectly competitive, the speakers (and the location and the coffee, etc) would have to be exactly equivalent.

Exactly. I wish more free market advocates understood this.

That may be. But if the consumer consumes the product without paying because they couldn't afford it in the first place, can you really say that you lost money on that? If they didn't have the money to buy it in the first place, how could they have given you money for it if piracy wasn't an option?

The real cause of piracy (other than availability) is the over-saturation of media markets that we have. Example: If I want to buy a new video game for $60, that's maybe 4 or 5 CDs that I can't buy, so I download those CDs instead.

I know that some people will call it naive, but we live in a society where we are bombarded by marketing in which everyone tries to shout the loudest or find the best way to subtly convince you that you need their product (i.e. you won't be cool unless you have X). But we are now in a marketplace where the consumer can choose to pay for X and pirate Y instead of just deciding to (exclusively) buy X or Y. So it comes down to this: If everyone is able to convince me that their product is a necessity, then I'll end up acquiring all of those products, but only some of them will be paid for.

Note: I'm using a hypothetical 'me/I' in this explantion.

Saying that you couldn't afford an item and therefore wouldn't have spent any money on that doesn't really mean you'd never spend any money on that given a free pirated option wasn't available.

The point being we do have the money, and we do can afford it. It's just that, when you can pirate it, you end up spending your money on other things instead. But its not like you'll never have enough money that you'll ever be able to buy one game.

It's interesting to observe the Playstation 3's market, because they've so far done what was unthinkable since way back the times of the PS1: a console you can't pirate.

So I have a loooot of friends that live on Brazil, and that pirated all their PS2 games. And that pirate music and movies too. Some even have an Xbox360 and pirate games on it too. But all of them buy PS3 games. They don't just leave their console there hanging, playing demos, as you'd expect.

People have a limited amount of income, but an insatiable desire to consume. How people deal with this varies from person to person. Though we can generalize it a bit, there is no catch-all generalization that applies to everyone.

In the future though, don't use anecdotes to try and prove a point. 'everyone does X because my friends in Brazil do X' is not a valid argument.

> Saying that you couldn't afford an item and therefore wouldn't have spent any money on that doesn't really mean you'd never spend any money on that given a free pirated option wasn't available.

If I download $3,000 worth of media per month, but I only make $3,500 per month after taxes, how can you posit that I would have bought all $3,000 worth of media where pirating it not an option? If I use the 'pirate market' as a way to consume outside of my income level (i.e. outside of my ability to consume without the 'pirate market') then how could I have purchased all of those things?

To your Brazil example, what were your friends spending that money on when they were pirating PS2 games or did their income level suddenly jump when the PS3 came out?

As for the income/worth of consumed media for month, I surely don't believe the amount of lost sales or whatever companies claim is exactly the amount of consumed media. That's false as you clearly illustrate. It means people would consume less media, within their means.

All those friends of mine, would the xbox 360 not have pirated games, would also have bought original games. They wouldn't just let it there, sitting. Would they buy every each of their pirated games? of course not.

So my thought process is not like "if there weren't pirated media, people'd pay for all they consumed as pirated items", but rather "weren't there pirated media, people would either consume original media, or do something else, and we can't tell that for sure". And therefore asserting that people who pirate stuff "would have never bought that anyway" is wrong.

Besides. As many companies who have dropped DRM have found, many pirates are simply waiting for an unencumbered form of what they want. If the only legitimate porsche seller is selling half-crushed cars, and there's a perfect-quality one sitting next door with the keys in the ignition and a sign that says "free to a good home", is it even ethical to buy the crap one? (that said, all "would you steal a porsche" arguments are straw man arguments anyway)

Ah, not if it's a DRM'd PC game. Many allow it, but try doing that with a Steam game. You're stuck with the often-inaccurate demo version of the game. And if you're talking about a console game, where do you go and who do you know to find all games you may be interested in? I generally have less than 10% success rate when visiting rental places, and that's not including foreign language titles that aren't available anywhere here.

Reviews are extremely poor substitutes for a good demo, in the same way that arm-chair theorizing is a poor substitute for field experience. And don't feed me bullshit about movie trailers being in any way a good measurement of what the movie will be like. Does reading a book really get you to understand what army life is like? To make matters worse, good demos are hard to come by, as most are relatively crippled compared to what you'd be buying (games and regular apps). If the demo doesn't demonstrate why I'd want it, or implies things that aren't true, I claim false advertising. And this is assuming there even is a demo version.

Though, look at how spoiled we've become by piracy. Now, we say we'd only buy something if we the exact same experience as we'll have with the final product. A demo is sometimes far from the game experience? yep. Movie trailers are bullshit? Sometimes, yes they are! Movie synopsis then? Even more!

Now, think about all the other things you buy. You can't really go to a car shop and say: "Hi. I'm looking for a car to cross the us. So, in order for it to be really like my final experience, I'll need to borrow it for at least a week.". Or like, "Hi, I want to try a Mac. Of course the factory Mac doesnt' help me much, so I'll borrow it for a day to install emacs/vi, some terminal scripts, quicksilver and see if it suits me well". The list goes on.

Specially with all the other non-pirated items, we have to make a decision about the buying the final product before we've had access to the final product. It's really up to the producer which means he'll provide you, as a sales mechanism, to try his product before you make your buying decision.

Not being able to have the full experience before you buy, specially with some kinds of products (some books, some games, most movies) is critical to selling it. It's not the consumer's right to take by force the final experience from the producer to make a buying decision.

I rented three games in a row from the local hollywood video for my 360 that were unplayable in some way. One was 'ringed' by another user, another was scratched just enough to lock up after the entry video and the third didn't boot at all. After the third trip back down the block to tell them 'hey this doesn't play either' I just downloaded the game and played it on my PC.

Needless to say, I haven't tried renting a game again.

Wait, you're saying 'only some of them will be paid for', even though you've been convinced all the products are 'a necessity'. A more succinct way of putting this, that I believe loses none of the intended meaning, is 'I want I want I want.' Of course, this behaviour is not to be blamed on you, poor consumer, for you live in an awful society which has bombarded -- yes, bombarded -- you with vile and shrill marketing in order to trick you into thinking you need it. The horror, the horror!

Yes, this is exactly what pro-piracy people are saying. They are saying that content has always been free and the medium is whats being charged for, hence you sell papers instead of news stories, CDs instead of music tracks etc etc.

The problem is that its often easier (certainly easier on the wallet) to pirate than to buy. Since its so easy, people are going to do it - regardless of what you do - so you need to adapt. Sure, you can rely on laws, but when a majority of the population does something, how can you make it illegal? Eg, even Lily Allen, who is completely anti-piracy, herself "pirated" to get her music out there. She claimed she did it because she didn't realise it was wrong. Well, most people don't! If most people don't realise that piracy is wrong (cause its just sharing, right? and most people are taught from a young age that sharing is the right thing to do), then how can we really make it illegal?

Its a tough one. If we did say that piracy is Ok, then business gets very difficult because where do you draw the line? If its fine to pirate music, then its also Ok to pirate movies and games and business software and.. just about anything thats convenient or easy to copy!

The general consensus on #startups seems to be that SaaS is the way to beat this, but really, SaaS is just a (currently hard to bypass) form of DRM, when you think about it.

I don't know the answer and I'm not trying to guess. Personally, I'm trying a mixture between the conventional business model and adapting to the fact that if my software is popular, it will be pirated - I need to ensure that between legit sales and alternative revenue streams, I make enough to be able to ignore the piracy..

That's only entirely true in a market where, using your example, the quality and content of news articles are identical.

People usually choose to purchase a paper based on the type of content inside; they might be paying more than the content is worth because of the media - but that is a slightly different point.

I believe PG has an article on the matter, though he seems to argue that this is, indeed, the case.

The product's price is relative to the marginal cost of production because that's the cost on the black market. The producer is competing with the black market.

One can get a copy of the Windows 7 Ultimate (or whatever it's called) for about US$5 a 10 minute walk from my house.

It's still a black market, despite it being active during working hours, 6 days a week.

While I don't agree with the original post, this is not an argument against it.

Unfortunately in digital age, a consumer can get the product by illegal means even if they can't afford it and producer doesn't really have a way to stop this illegal behavior.

I agree, except I would say "fortunately". Monopolists should not have a legal right to their market, even if the market (for Metallica songs, for example) didn't exist before they began selling in it.

"Monopolists should not have a legal right to their market"

Such a big statement with no real way of supporting it any further (the converse is also true). None of the rules around copyright or property ever came about because of any kind of "Natural Law" or moral reasoning. John Locke, be damned. Property rules were created based on existing conventions, or in some cases, created to correspond to defensible borders. You can hum a song or talk about it or play it on your guitar when you get home.

You can't sell copies of it? Why? Because printing, pressing & such are (were) possible to regulate with laws. Humming is not.

It's not a moral axiom; it's an expression of preference. More seriously, any argument for or against it relies on so much shared understanding that it's not clear that there's much use arguing about it at a length of two or three sentences. One sentence is enough to express the conclusion, but a rigorous argument that covered all the major approaches would require a fairly hefty book.

Because printing, pressing & such are (were) possible to regulate with laws. Humming is not.

That's one approach, but how will you defend your right to hum whatever you want when all of your actions are recorded all the time? Our current technological progress appears to be headed that way, making automatic enforcement of any arbitrary rules possible. In that situation, the question of what the rules should be is more than a question of what sort of rules can be enforced.

There is no way to prove this right or wrong. It is just a bad statement to make in the context of economics.

"Software ISN'T a t-shirt. A t-shirt needs cotton. That cotton must be dyed, woven, sewn, printed, packaged, shipped. Software ISN'T a meal. A meal has ingredients, and the more you spend on them, the better, and that goes double for your chef's salary. People understand where their money is going. People are just fine with paying through the nose when they get their money's worth. But no one likes to feel like they have been taken to the cleaners."

Looking up on Google, I can get 500 audio cds for around 185$ (http://www.google.com/search?hl=en&source=hp&q=audio...), per CD cost is 37 cents. Do you think that I should be able to buy the latest album of Backstreet Boys for 37 cents? Where do you account for thousands of dollars spent on recording the album? What about paying the artists? ....you know the 'fixed costs'. We still happily pay 9$ for an audio cd because it gives us pleasure which is worth more than 9$. As he says, 'getting money's worth'.

Tell me again, how is software any different? You buy the software ONLY IF you think software gives you more value than it costs you to acquire it.

Software, like most intellectual property is a Non-rivalrous good. Nothing in software design prevents simultaneous consumption, indeed, we would not have any website if that was the case. A T-shirt or a Meal is a Rivalrous good, my consumption of the meal prevents your ability to eat it.

The law affords protection to non rival goods be enacting author rights, exclusivity for a period of time, copyright etc... historically the limits ware set to release non rival good to the public for its general use.

Software companies, entertainment companies etc.. seek to milk those rights to no end, it will be an interesting case to see what an early mandatory release to public domain will have on piracy as a whole

Separately, I do think the argument is wrong, because it's based on the labor theory of value, which has been shown wrong.

Now, I'm not saying that copyright doesn't do what its meant to (patents are another story however...) and I'm not arguing that copyright should be eliminated.

But this is not written in stone.

Imagine an alternate model where artists still own full IP rights, including on non-commercial use, but use an open process to distribute their music. A free for all in distribution.

Or a model in which artists only make money in commercial distribution. Pirate Bay would have to pay, but downloaders not.

Or any model in which the artists can be compensated in two different ways. For example the classic way, and a way for listeners to subscribe to "unlimited mp3" plans. Of course, if both distribution channels go trough the same media companies, like I think they do now with online music purchases, there is no real competition to drive the prices down.

The crux of the matter is that the bottleneck is not at the artists, but one step down. Remove that, and lots of alternate models involving real competition can appear.

You will have a hard time finding someone my age or younger (early twenties) who thinks that pirating a cd is equivalent to steeling anything; and building upon that idea many even think torrenting/pirating software and video games is an acceptable thing.

I don't know what will happen with music and its distribution but one thing I can say is it probably won't stay the way it is indefinitely.

However, it's not just about price, it's also about being able to get a product in the form and through the channel that a consumer wants. This relates to the current argument about the availability of legal downloads vs pirated downloads. And wait, wait, yes, you're correct, producers have the right to determine product form and channel. :)

The way that piracy can work for market correction is that it's information. A product's sales may not be performing as well as a producer would like. Is it because it's too expensive? Or do people just not want it? It could be one, or the other, or both, or other. Piracy, while illegal, is still an indication that yes, people do want the product, and it's desirable enough to break the law to get it. So what can we, the producer, change to convert those pirates and other non-consumers into paying customers?

A producer could (doesn't have to) use that extra information to help him think about his product's format, or channel, or price.

Why do consumers have the right to their choice of form, channel and price?

If the seller is unwilling to provide as the consumer prefers, where does the consumer get the right to force the producer's hand?

What's wrong with "if the buyer and seller don't agree on terms, the deal doesn't happen"?

They don't have any particular "right" to these choices.

But that doesn't mean the choices disappear. And it also doesn't mean that real value is not created by offering them, even if it's done illegally: the Pirate Bay has probably created more real value in this world than most startups could ever dream of. It doesn't matter that it's ethics are questionable.

What's wrong with "if the buyer and seller don't agree on terms, the deal doesn't happen"?

Nothing at all, that's exactly what happens a lot of the time.

With most digital media it just so happens that there are plenty of illegal "sellers" that are willing to step in with terms that are more suitable to the buyer.

It may not be legal or "right", but it's pretty damn efficient.

Everyone is owed everything with nothing in return.

http://en.wikipedia.org/wiki/Compulsive_hoarding

Comparatively, there are compulsive hoarders of physical items that have their house filled to the brim with items that they have purchased, or run up huge amounts of debt acquiring.

I'm not saying they have that right, not beyond deciding to buy or not. I'm pointing out that some consumers do try to appropriate that right, and that's one indication of demand.

Producer has the complete right over their product. They can price however they want, they can decide the form and the channel by which you will be able to acquire the product. Piracy doesn't provide information. A free market with healthy competition lets producers know what consumers are looking for. And trust me, they do a fine job at it.

Imagine for a second that there was a 100% fool proof way to protect digital content. Do you think recording companies will be fighting with Apple about letting them sell the music on iTunes? If I were to guess, there would be an online music store from Amazon, from Microsoft, from Google, from Pandora and what not. All competing with each other trying to sell music. A song would probably cost less than a dollar because suddenly you can tap in to much larger consumer base. Unfortunately, there is no way to protect digital content and we are back to our imperfect world.

I completely agree with you.

"Piracy doesn't provide information."

Everything is information. Some is more relevant than others, and relevance can be because you decide to treat it as relevant.

Just because you can't record food on a CD doesn't mean musicians are special and should make millions without working for it.

The only ones I'm the slightest bit worried about are writers.

At least not yet ;-)

People "steal" the content because they want it, it's easy, and there are no consequences (regardless of what the MPAA would have you believe).

It seems to be a big issue right now because there is an industry built around the old copyright system. Eventually, those companies will perish or transmogrify into something useful, and people won't even talk about piracy.

No, producers will move to platforms where it is difficult to impossible. Care to guess how many people have pirated the SaaS version of Bingo Card Creator versus how many have pirated the downloaded version?

I am not the only person to have done the math here. Look at the sales of, say, MW2 on consoles (where piracy is hard) versus PCs (where piracy is trivial). Look at the PC games which actually sell, where World Of Please Pirate This Shiny Flat Paperweight is probably, what, 4 of the top 20 SKUs at any given time. There used to be a thriving PC games market. It has, predictably, shrunk to those sectors where it is actually profitable, avoiding sectors where 90% of the "customers" steal the product.

Every time I hear the online crowd whinging about nickle-and-dime models like microtransactions, and not being able to "own" the software they planned on stealing, I have a brief moment of that very hard to spell German word.

As copyright laws ease, some will turn to SaaS, but others will embrace the model of letting a lot of people have something for free, and charging those that can afford it.

Heck, people like to give books as an example of media that must be protected and that will never be free. But guess what... the most popular Kindle authors these days give many books away for free.

Moreover, the biggest companies have been turning a blind eye to piracy because they believe it helps them sell more software, for ages. Microsoft is the biggest example... as Bill Gates once said (and I paraphrase) - I'd rather you steal my software than buy my competitor's.

Is it because the argument is fundamentally flawed, or are we seeing a little groupthink here?

Honestly, I don't know what I think of it. On the one hand the pro-piracy people do make some sense, but on the other hand, a world of free everything is impossible to sustain and messy to do business in. Unlike OSS people like to think, support is not enough to.. err.. support all businesses. It works in some cases, sure, but it doesn't scale very well and for some businesses simply doesn't make sense.

He's saying that demand is still high, as is supply. But because the marginal cost of each unit is so low (on the postulation of infinite copies), that piracy is how the price is "fixed" economically speaking.

This isn't a pro-piracy position, but if you see it as each copy of the game had to be physically manufactured piracy would drop to zero - otherwise it'd be called theft.

For those wondering, Patrick is (almost certainly) referring to schadenfreude: joy derived from others' misfortune.

Short of increased enforcement I completely agree with you - this is the only viable long-term solution. Ad supported software is always suggested as a another workable solution, but I don't buy that argument. Ad supported software suffers the exact same problem, it can be hacked to the point where eventually all the ads are removed.

Oddly enough I've always wondered why publishers haven't fought harder against the e-books. Books were already "on a platform where it is difficult to pirate". The move by publishers towards the Kindle seems to directly contradict: "producers will move to platforms where it is difficult to impossible".

That works only for software, not for media.

The big screen experience has always been different to what you could get at home. That apparently didn't stop people from watching pirated hollywood content on their small tubes.

Likewise 3d screens will dripple into homes the same way radios and tv sets have.

I saw this firsthand in a friend who, after getting a job, decided to start paying for software. I do the same thing. If I have money, I'll pay for a song, otherwise I listen on youtube and keep the tab there for the next 6 months.

I'm genuinely interested if anyone here has any ideas; it seems like a very difficult problem.

We see how this works out in the historical patronage system; before the development of copyrights, most reproducible art (poetry and the like) was created not to sell, but to flatter some aristocratic bigwig -- that's why its conventions were so stubbornly moribund, and why it took something like 1400 years for the novel to be reinvented after the end of the Western Roman Empire.

I think this is a particularly alarming situation in regard to computer games; it would mean that the average game would probably be a cheaply-produced advertising piece -- imagine a world in which the Burger King promotional games outnumber _Jagged Alliance_ and _Final Fantasy 6_ by an even larger margin than they do now. I think that we can get a hint about what would happen by looking at the Arab world, where piracy is unusually rampant and the only active game development is done by Muslim fundamentalists...

Sure with an indie title you have fans that are more sympathetic to the producer, but with mass market titles you have the entire mass-market demographic. Do you really think that the number of people in the mass-market who are too lazy, dumb, or otherwise choose not to pirate out-weigh the ratio that sympathize with indie producers?

Show us some statistics please if you're going to make this argument.

I'd hypothesize that its popularity is directly related to its production values and budget, with a few exceptions. That is, the more popular media is the kind of creation that needs to be incentivized, because its expensive.

I've seen people who aren't even particularly tech savvy pirate Hollywood movies and major label music. It seems to me that pirates are killing the very content makers whose products they most enjoy.

I don't have any statistics or evidence beyond the unanimity of my personal experience and observation. Could you give me statistics that show people pirate low-budget content more than the reverse?

Copyright law may be outdated in that copyright holders are able to shout "piracy" instead of obeying the laws of economics, but I don't believe it is the main problem.

No, I think you're wrong. I think most pirates would continue to pirate media, even if the author increased the value of the media. They just take the extra consumer surplus and enjoy it.

It's difficult to recognize why a person is pirating. For all I know, copyright holders have priced their works correctly and are complaining about people like this.

And if the copyright holder doesn't realize or doesn't lower her price, then what?

Perhaps the government will simply increase the costs and risks associated with breaking that law until they are so extreme, and the risk of getting caught so high, that large-scale piracy will cease to be a worthwhile endeavor.

I know that HN is fond of the view that IP will be abandoned, but I see no compelling reason to believe your vision is more likely than mine.

One would have to outlaw user-customized hardware, non-corporate software development and build user spying capabilities into every device.

Large-scale piracy is very different than ensuring "the practical security of digital IP always and everywhere". Putting a _practical_ stop to services such as the Pirate Bay would be incredibly simple if it were enacted by national governments. If it turns out that in practice it's not enough there's numerous other easy, cost effective measures that could taken.

A solution doesn't have to stop 100% of piracy to be effective.

That said, an IP market doesn't need perfect government protection to survive. It just needs to be good enough that those who wish to steal additional copies incur substantive risk and/or cost.

I'm not arguing it's the best or only way to proceed, simply that it is a possible and seemingly viable way to do so, and as such, people would do well to recognize that the future is not guaranteed to be copyright and patent-free.

Let's say that a piece of software has price p and that you get value v from it.

If v > p, then you will choose to buy it, getting v - p in consumer surplus. If v < p, then you choose not to buy it.

Now let's say that you can pirate the software as well, with chance of getting caught c and punishment if caught d. Pirating the software costs 0. If p > c * d then it's economically rational to pirate it, getting overall value v - c * d.

If you think it's just because they don't know how, then you're wrong.

I suggest because of their own sense of fairness. Most would not get caught but they still feel it's right to pay a software author for what they have created. Some cultures (currently) have more of this sense than others - e.g. the U.S. more than China.

I suspect a similar reason for why most people don't buy black market goods: pirated handbags or knock-off electronics brands, for example. The quality is perceived as worse, or at least unknown.

Digital media (movies, music) on the other hand are more widely understood to be "exact" copies of the original and so there is less concern about the quality of the illegitimate good, to the point that it isn't considered illegitimate.

Economic laws have been developed over time for the good of society. We started to settle and farm so we needed property rights. This was so your hunt didn't kill my dairy cow - disrupting both our milk and cheese nommage.

Intellectual property rights exist then to ensure that society has a good supply of IP. Their success should be judged not on the moral value of you 'stealing' my 'work' but on how the copywrite and patent systems changes supply and demand curves from the baseline that would exist without the extra rules (and costs associated with those rules).

Remember it was not illigal for you to hunt my dairy cow because of how unfair that feels. If I'd been keeping a friendly rabbit alive society wouldn't have bothered with property rights. Society wants more Meat and Cheese, not warm fuzzies.

So where does that get us? Well, does anyone truly believe they'd be music starved if they could only listen to the current back catalouge + what would be made for the kudos / enjoyment / profit from merch & performing? No chance. Music should be free, we have a VAST oversupply and there are ample incentives to keep people supplying it without authorized monopolies.

Books? Movies? Games? With these the cost of production is alot higher, the argument that people would do it for free still exists but it's less obvious how they could leverage resultant fame into some kind of money spinning live performance. I think here society needs to have the debate, but for it to be useful it MUST be framed in terms of supply, demand and what behaviour the system incentivieses. Not self-rightious moral 'right' of what you 'deserve' either from the pirates or the artists.

Now how many people steal Photoshop, Microsoft Office, and computer games?

Its overpriced for the market, based on the added marginal value. The supply is greater than demand (especially for digital products - versus services - supplies are virtually unlimited), and people are correcting it by downloading it off the internet for free. These people probably wouldn't have bought it anyway - so its not stealing. And its not wasted resources by the these firms so they can't count it on the books as a loss.

This is economics 101. A supply curve goes up with cost, a positive relationship with price. As price goes up, demand goes down, and the market price is where they meet in the middle.

Because it cost virtually nothing to copy bits, the supply goes up. As the supply curve shifts up vertically, the demand doesn't necessarily change (demand curve shifting to the right) to compensate to keep it at the same price. Since demand is still at a constant rate (a certain number of people want to play these games), but supply is practically unlimited, ethically people can talk themselves into stealing it for free (correcting market price).

As software developers I think HN is a perfect forum for audience polarization, but the fact of the matter is both arguments have their merits and can coexist without mutual exclusion.

After reading the article then looking at the comments I was actually very surprised. But I'm merely adding my portion to the discussion.

For example, not many students and graphic artists starting out can afford to buy a copy of Photoshop, let alone the entire Creative Suite. If all the talented creative types opt to spend their time learning GIMP instead of pirating Photoshop and learning how to use it, the companies that hire them have no reason to buy the expensive software. In effect Adobe needs users to pirate their software to ensure there are as many people as possible who know how to use it, thus securing the sales to businesses.

There's a lot more to this discussion, because it's not a theoretical 'perfectly competitive' market. Supply in the case of one product is restricted to one supplier so it doesn't mirror a normal S-D curve. In a normal supply-demand curve supply moves up because others enter the market with equivalent products, driving the price lower until there's a balance. In the case of Office, others have entered the market and, having created alternatives, the price is lower than it would otherwise be. There is a lower limit to the (price x sales) of Office below which Microsoft would have no incentive to create it.

If the software market could be equated to a normal S-D curve with a single product in the market, software developers would quickly restrict the amount of applications they sell. You'd only have 100k Office licenses per year.

The difference is simply a matter of enforceability.

And its not necessarily a matter of enforcability as it is availability. If natural gas and electricity were as easy to steal as computer games or WiFi then people would do it. Natural gas and electricity, while commodities, are still limited by our technology and can not be given to everyone with a computer as easily as computer games.

There are certainly cases where piracy is a market correction of sorts, but you certainly can't just narrow it down to a single cost-to-produce argument like the linked article. It's a large variety of different problems and incentives tied to a single, very polarizing, issue.

Trying to come up with a magic bullet solution/answer is just shooting at the wind.

Traditionally first service was paid by establishing monopoly for second service and channeling disproportionate gains from providers of second service to the providers of first service.

Since second service became ubiquitous (anyone can provide it at almost no cost and without involving anyone else except himself and his customer) it became virtually impossible to uphold this model of financing creative work.

Of course no one gives away old ways without putting up any fight, especially if old ways brought him mountains of cash, but all antipiracy campaigns are just futile attempts to play against the market that due recent developments in communication technology made coupling used in the past infeasible.

There are new ideas (new for the industry) how one can pay for creative work. Some are advertisement based. Some involve entangling content to services provided by server that is under complete control of party who has deal with content producer. Some (dumber ones) involve closing up content delivery process by limiting capability of device.

Some things turn out to be more profitable some less. Market adapts to advancement of technology. Some people are not seeing money that past experience led them to believe they deserve but that's just the way life goes.

Technology giveth, technology taketh away.

http://books.google.com/books?id=lLZbXN2odVYC&printsec=f...

Journalism is the process of paraphrasing press releases into content to place ads around, while self-aggrandizing about how democracy depends on your work. Even Woodward & Bernstein were straight stenographers, just to the acting head of the FBI instead of some PR flack.

* Lack of available funds. This is a mostly harmless (and sometimes beneficial) form of piracy. If a person has $75 and a product costs $200, then their two options are non-purchase and piracy. In this case, piracy cannot financially hurt the owner, as the person could not have bought the product in the first place.

Adobe have used this kind of piracy to their considerable advantage. High school and college kids pirate Photoshop and become proficient. They go on to become professionals, already locked into Photoshop.

* Unwillingness (but not inability) to purchase. This is a harmful type of piracy. A person has the available funds, but pirates something through pure unwillingness to pay for it. This is seen mostly in music and app store piracy.

This is a difficult kind of piracy to deal with. How do you compete with something that is free? One notable success is Spotify, which has displaced a proportion of piracy by merely being more convenient.

* Non-availability. This is particularly prevalent in the piracy of TV shows. Frequently a program is shown exclusively in the US, and is not available in other countries for months or years, sometimes never at all.

This is potentially financially harmful to rights owner, but as those pirating the shows only have the options of non-purchase and piracy, it is justifiable.

* Superiority of the pirated product. For example, music at a higher bitrate than can be easily purchased, a pirated TV show that can be watched at any time in full 1080p, a pirated game that does not include restrictive DRM. This type of piracy is financially harmful.

Morally this is a bit of a gray area. Perhaps the moral solution is to purchase the inferior product and pirate the superior one. This is however still illegal. The general solution is for the rights owners to "compete" with pirates, to provide equal products.

There's a lot of information out there for anyone who wants to actually try and understand the issues, instead of dismissing people who have though about them and claiming everything is bullshit, econ101 and stealing. How can you even have a discussion with someone that can't even differentiate between physical property and intellectual property?

Either we try and work around the issues and find solutions, or give up civil liberties in the name of stagnating business models. Incomprehension and ignorance must be the lobbyists best friends.

I pirate because I would never be afford all the things I want or use.

I'm not saying I wouldn't pay someday when I have money, but the $ to content ratio is too high. It is not stealing a product, but a service. I'm stealing an experience created by a company (video games) or a sound created by musicians and not paying the entrance fee.

There is another side to the issue that he completely ignores.

That may apply for you, but seems empirically false. Take, for instance, 2D Boy's recent "Pay Want You Want". The plurality[0] chose to give $0.01 (the lowest possible amount). I really have a hard time believing that $0.01 was anywhere near the maximum of what the average customer could afford, or valued the game at.

As long as it's without consequence and easy enough, people will take what they can. Leave a six-pack of beer in a communal college dorm and see how long it lasts, if you don't believe me.

[0]: http://2dboy.com/blog/wp-content/uploads/2009/10/histogram.p...

Of course, there's a massive externality to deal with: how do the people who create media get money for it? But in an optimal system (which we might not be able to create) everyone would still be able to consume as much as they want.

How is it "optimal" if it doesn't address the obvious cost?

We don't consider compensating producers as an externality where physical goods are concerned, so why is it an externality for intangible goods?

That's a good question. One important difference is that, at the point of which duplication is possible, the intangible good already exists. Compensating the creator for creating the good may or may not encourage future creations. It's a sunk cost. It's also the only cost.

Not so fast. Yes, duplicating intangible goods is relatively inexpensive, but at point of purchase and use, tangible goods also exist, the costs are sunk, etc, so they're exactly the same.

In both cases, payment compensates producers for effort and resources that have already been expended.

While true, that's irrelevant to an argument that claimed that sunk costs were an externality that wasn't all that important.

If I know X% of the population has acquired something for free, how am I supposed to feel when I'm expected to pay for it. Our society places a lot of emphasis on being the best and always being competitive with one another. How am I supposed to be the best or be competitive with others, when the playing field isn't level. The only way in this case to level the playing field is to also engage in piracy.

If this is the case, then people should be less willing to pirate a game that costs $millions to make than a game that costs $thousands because it is more "fair" to pirate a game that was made on a budget than a game with high fixed costs. I don't think that is the case. Rather, I think piracy is a function of how much a pirate values his time and effort and how much he likes the software product.

The copyright holder's problem occurs when they create work that has less value than what they spent on it, based on that equation. This, I believe, is the author's point. When the public sees your product as having less value than you do, they will be unwilling to pay the amount you charge, and will pirate your work.

On a commentary note, what would drive a hacker to write a crack for a game? Most of the time it's not even for money.

Others just download it after a search.

A couple years ago, my local bagel store raised its prices. When they did, they put a notice next to the counter saying, “To our valued customers: Recent increases in the price of wheat have forced us to raise prices. We hate to do this, but it’s the only way we can continue to pay our rent. This will be our first price increase in almost eight years. We hope you understand our situation.”

According to Econ 101, this sign was a waste of time. Customers will look at the new prices and decide whether or not to buy bagels at those prices. In fact, according to Econ 101, the bagel store might just as well have put up a notice saying, “Dear customers: We are raising our prices because we’d like to increase our profits, and we suspect that many of you are not very price-sensitive.”

Of course, no one conducted an experiment to see what effect the sign had on business, but I’m prepared to bet it helped minimize the drop in business from the price hike.

Econ 101 has no concept of “fair share,” but consumers do, and they’re willing to take losses to prevent someone else getting more than what they perceive to be his fair share. (http://en.wikipedia.org/wiki/Ultimatum_game) This isn’t right or wrong—it just is.

If you’re selling physical goods, you should sell them at whatever price enables you to maximize your profits, just as Econ 101 suggests. But you should also suggest, in the way you talk about your product, that the cost is determined largely by the cost of your inputs.

If you’re selling intellectual property, well, it’s a bit more complicated because everyone knows the inputs don’t bear on the marginal cost of each item. But it might be helpful to let everyone know that you’re not getting rich. Let your customers know you’re trying to support a family as an independent software developer, or that you still work a day job to allow you to make music. Don’t let people think you’re ripping them off.

Of course, when your product is easily available for free on the black market, as is the case with piracy, none of this makes much difference. Consumers prefer to pay the lowest possible price. Econ 101.