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.
Like you say, even the most basic markets require external factors like laws to function. The real estate market for example would, I believe, break down if it weren't for laws prohibiting people from trespassing, squatting, etc. The retail market would also break down if it wasn't for the enforcement and existence of shoplifting laws.
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.
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.