Piracy is often a market
signal that things aren’t working as efficiently as they could be. In the music
business, for example, pirates exist because the majors are still trying to sell
music from a set menu, when everyone has been demanding a legitimate
all-you-can-eat service for nearly 10 years. If we can compete in
markets with free substitutes (cable competes with free TV, the record industry
competes with free radio), why not monetize the free music coming out of the
Internet in the same way?
A more efficient way to
monetize how we consume music online (and other goods with zero marginal
production costs) is not to think about monetizing them in terms of sales, but
instead in terms of licenses. Let people use them more, but charge them less.
Online all-you-can-eat makes more money than set menus, and it poses the
opportunity to create a disruptive, new business model that would turn hundreds
of millions of pirates into paying customers.
This opportunity is a
voluntary collective license for music, which could be as low as $2 a month,
which consumers could choose to pay, or not. This system wouldn’t be a tax;
there would be no cap on the amount of money an artist or label could earn; and
innovation would not be stifled.
Rather than exploring other
options, however, all the labels are doing is exacerbating their problems. When
Rhapsody lowered its prices from $0.99 a song to $0.49 a song, downloads jumped
by 600 percent, increasing sales revenue by 300 percent. The reaction from the majors? In
their infinite wisdom, they put pressure on Rhapsody to return prices to $0.99
a song. By giving people good legal alternatives at fair prices, the
major labels would soon start to make a lot more money than they do today. But
the longer they refuse, the more money they stand to lose.
The record labels aren’t
the only ones suffering. Many of us trying to monetize content online are
confounded by similar problems. Information is getting cheaper
and more expensive at the same time, and a lot of us are no longer sure how
to make it work. We want to spread ideas as information, but capitalize on them
as intellectual property. This problem with information is something I call The
There isn’t a moral defense
for stealing in most cases, and sometimes fighting pirates is the best thing to
do. But the legal department isn’t a revenue stream, and if pirates are
providing a better service, they’ll keep popping up no matter how many lawsuits
are thrown around. The only way to compete with pirates is to offer the same
service in a way that’s more convenient, usable, and accessible, at a price
that’s fair -- then market the hell out of it.
Some of America’s
greatest innovators were thought of as pirates. When Thomas Edison invented the
phonographic record player, musicians branded him a pirate out to steal their
work and destroy the live music business -- until a system was established so
everyone could be paid royalties, and the record industry was born. Edison, in turn, went on to filmmaking and
demanded a licensing fee from those making movies with his technology. This
caused a band of filmmaking pirates, including a man named William, to flee New York for the then still Wild West, where they
thrived, unlicensed, until Edison’s patents
expired. These pirates continue to operate there, albeit legally now, in the
town they founded: Hollywood.
William’s last name? Fox.
Pirates create periods of
chaos. It’s the responsibility of the industries they disrupt to evaluate what
the pirates are doing. If they aren’t adding any value to the consumer, then
fighting them with the law is likely to keep pirates at bay. But if the pirates
are doing something consumers prefer to the status quo, we must turn this chaos
into a new order and enshrine the new innovation created by pirates in law.
Pirates present us with a choice. We can either fight them in the courts, or
match them play-for-play in the marketplace. To compete or not to compete, that
is the question; that is The Pirate’s
Pirate’s Dilemma: How Youth Culture Is Reinventing Capitalism is out now
through Free Press (and probably soon on a BitTorrent tracker near you).
— Matt Mason, Founding Editor in Chief, RWD Magazine; author of The Pirate's