In the previous DRM articles, I’ve looked at how the Incentive and Labor Theories impact the way people argue DRM issues on both sides.
This article will focus on Economic Theory and DRM.
Economic Theory is cynical of the Labor and Incentive Theories as it looks through the eyes of Homo economicus, the rational self-maximizer.
The basic assumption in Economic Theory is that in market scenarios individuals will act rationally to get the highest level of utility or value for the least cost.
In an economic rhetoric, the fundamental purpose of copyright is to create ownership rights in creative works in order to commodify them.
Why is it in the best interest of society to commodify creative works? Because doing so creates wealth and social order.
Another important aspect of this theory is the “tragedy of the commons.”
Imagine a 1,000 acre plot of land open to the public to grow crops. There are two problems for those using the land.
The first is social disorganization. If everyone has simultaneous and comprehensive access to the land for growing crops but there is no ownership, the result is chaos as individuals vie for use.
The other problem is over-use of the land. If everyone has simultaneous and comprehensive use of the land but there is no ownership, individuals will try to get as much as possible out of the land in the short-term. This is because individuals will be concerned with raising and harvesting crops as against competitors.
However, if a system of ownership is overlaid on the land, rules and boundaries delineate access and use, competition for use will be minimized, and owners will concern themselves with getting the most out of long-term use of the land.
Thus, the two arguments of the Tragedy of the Commons are that (1) lack of ownership results in chaos, and society needs order; and (2) lack of ownership results in waste and mismanagement of assets, and society needs to manage the bounty.
Economic theory adds another argument with a market slant which is that (3) ownership is beneficial because it allows that property to be commodified and sold.
Applying the above arguments, the creation of privately owned intellectual property out of ideas in the commons is favorable because it stimulates social order, the organized market for commodified ideas, and long-term asset management and maximization.
Even if the owner is unable to fully exploit the intellectual property, she can license it to someone who can.
Economic Theory & DRM
The issue of DRM revolves around protecting content to ensure that there is a future market for that content.
Without DRM restrictions, the argument goes, content will float around the internet, being copied and distributed from user to user, with no money flowing back to the content owner. This piracy undermines any organized market for content.
Economic Theory, with its focus on the commodification of digital content, provides the very foundation upon which the content market is based.
Its rhetoric can be found in every propounded model for digital content, except the Extreme User model which rejects notions of property and holds fast to the idyllic commons.
The bottom line in Economic Theory:
In a commercial world governed by the market, the "rational self-maximizer" should try to get the greatest value and utility at the lowest cost. Essentially - a COST / BENEFIT analysis.
Copyright owners are rational self-maximizers - they will try to get the greatest return on their copyrights at the lowest cost.
Many copyright owners are not in positions to maximize the value and utility of their digital catalogues for a variety of reasons, including the technological and financial costs of designing and implementing a satisfactory business model (including DRM).
Economic Theory advises licensing and out-sourcing as a solution to the problem.
In keeping with the idea of seeking the lowest cost in the maximization of value and utility, licensing/contracting out to one or a few content marketers and DRM developers means transacting with a few entities instead of myriad transactions with myriad online middlemen.
This scenario results in transaction costs taking a much smaller bite out of gross profits, and is thus in line with the Economic ideal.
DRM proponents often argue that, regardless of whether DRM is ultimately "good" or "bad," content owners should have absolute discretion in how they control the content they bring to the digital market.
Incentive Theory would add: Without discretion, what is their INCENTIVE to offer the content?
Labor Theory would add: Because they invested their LABOR in the creation or acquisition of the content, they have a fundamental right to control its uses.
Economic Theory would say:
If they want to give their content away for free with no DRM, let them.
If they don't want to bring their content to market at all, that's fine too - they just won't be making any profit off it.
If they want lock their content up with DRM and then bring it market, fine.
The wisdom of any of these decisions will ultimately be borne out in the marketplace.
Thus, content owner discretion (when it comes to DRM) will result in an optimal, market-determined balance between what consumers are willing to accept in terms of access and what content owners want in terms of control. Or so the argument goes.
DRM detractors would likely cede the point that market forces do indeed satisfy the reptilian social necessities of efficiency, standardization, profit and control.
However, they would likely disagree that a purely market-controlled environment for DRM would result in an optimal balance between users/consumers and content owners.
This all comes back to the delicate balance between user access and copyright owner control - the beating heart of the DRM debate.
More than efficiency and profit, users are concerned with the less tangible fair use, privacy and derivative work rights. Users view these rights as fragile yet vital to the fostering of a supportive, creative culture.
DRM detractors argue that in a purely market-driven world where content owners have absolute discretion over the application of DRM, content owners would only take fair use & derivative work rights into consideration if it was profitable to do so.
Content owners often have a hard time seeing the profit in fair use and derivative works, so why encourage it through lax or no DRM? Content is property, and property must be protected from infringement.
Digital content users ("consumers" in the economic rhetoric) are rational self-maximizers as well.
They too are constantly solving the cost / benefit equation for value and utility in their everyday transactions online. In determining whether to purchase DRM'ed content online, many factors will go into that equation - ease of use & access, price, and availability of other options among them.
Thus, where "value & utility" for content owners means control & profit, "value & utility" for consumers means access and price.
If the same content is available in a non-DRM, pirated format, many consumers will gravitate towards the "dark net" black market to fulfill their content needs.
Thus, Economic Theory can be used in 2 ways by DRM advocates.
It can be used to argue that content owners should have absolute discretion in how to bring their content to market, and let the marketplace decide if the application of DRM is profitable.
It can also be used to argue that (black) market forces are forcing them to DRM their content. The longer DRM is not implemented in current content, the larger the black market becomes for pirated non-DRM content.
According to content owners & DRM proponents, to protect and maximize the value of their property, they MUST dam the river of pirated content to create a fenced-in reservoir of controlled content.
Otherwise, the stream of lost profits will continue to flow away from the source. DRM is the dam in the river. DRM is the fence around the reservoir.
DRM advocates may raise the “tragedy of the commons” argument – the goal which benefits everyone is to create a safe, legal and efficient marketplace for content. Otherwise, chaos rules and content is mismanaged.
However, DRM detractors counter that such an argument more readily applies to REAL property – not digitized intellectual property.
Only so many people can be fed by a harvested crop from a plot of land. But if that same crop could be copied an infinite number of times, as with digital content, no one would go hungry and mismanagement would not be an issue.
However, the pro-DRM argument which is based on the notion of creating an efficient, legal marketplace is difficult to surmount.
In our society, creators of original works fixed in a tangible medium are granted a copyright. That copyright gives them the EXCLUSIVE right to reproduce, distribute, adapt, perform and display their work.
Therefore, it makes rational sense that if they choose to put their content online – they can also choose to restrict access to their content. (This is not to say that refraining from attaching DRM means a content owner is waiving their rights to their content – because that is not true)
Content owners would argue that they do not attach DRM to punish the consumer (that’s what lawsuits are for!) but to protect the future market for their content in a forum where copying is easy to do and does not reduce quality.
Many DRM detractors would likely agree that content owners have every right to use DRM to protect their content.
However, unlike a marketplace for real goods, where a consumer can shop around for similar products at varying prices on varying terms – the marketplace for content is different because each piece of content is unique.
Consumers cannot shop around and take their business elsewhere if the specific content is ultimately controlled by a single content owner. This drives consumers to the black market for pirated goods.
The next article will focus on Public Domain Theory and DRM.
- by Howie Cockrill, Esq.
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