Welcome to Strike Wednesday

Posted: January 18, 2012 in Economics
Tags: ,

When the French have a problem with particularly egregious government regulation or sometimes even when one is proposed, they call a general strike or perhaps just a slow down.  Farmers have been known to drive their tractors to Paris to parade them down the Champs Elysees to protest farm policies.  I was there nearly a decade ago when a strike shut down the airports on the day I was to fly home.  It was mildly inconvenient causing me to use a bit more French and to sample some more of its wonderful food and wine.  Hard duty to be sure.

In America, few things unite us enough to spawn a strike, it’s not our style.  At least that’s been the case until now.  Today many Web destinations like Wikipedia (24 hour English language shut down) are staging some form of protest to air their displeasure with proposed legislation — the Stop Online Piracy Act in the House and the Protect IP Act in the Senate — that would crack down on piracy while only damaging personal rights a little bit.  Hey this is war time, right?  Welcome to strike Wednesday.

The sides have been chosen pretty much like you might expect with big business — major media companies — mostly supporting and the Internet community in uproar.  There are many reasons to be on either side of the issue and there is enough material out there to inform you of each side’s ideological purity.  I want to skip that and look at this from a business and economics perspective.

The media industry including the major studios, record labels and TV networks have taken it on the chin in the last couple of decades.  Good, fast and cheap computing power and the Internet have made it nearly impossible to protect intellectual property from being massively and freely distributed without the copyright owners’ consent — at least given the current approaches to protection.  That’s what this legislation is all about.

The choice that the media companies have is to figure out solutions to protect themselves or to use their muscle to lobby congress to make law.  The legislative approach is much easier because the politicians are so much more cost effective than technology development.

Sidebar: I am continually amazed that politicians can get hundreds of millions of dollars or more set aside in earmarks or other gimmicks for their supporters and when it’s revealed we find that their campaign coffers have swelled only by tens of thousands of dollars.  But I digress.

Here’s my economic analysis.  The media have for a long time had a cushy ride.  They own the means of distribution, which enables them to cut outrageous deals with artists and others.  For example, a typical book contract is an 85/15 split with the lion’s share going to the publisher.  Record labels aren’t much different.  The media houses cite high costs of production and marketing but when you see what they’re willing to do to actually earn the split through marketing and promotion, you become jaded.

The media companies don’t have a copyright problem per se, they have a business model problem.  Their model is based on selling product in an era where the economy is moving rapidly towards subscriptions.  Subscriptions provide a relative drip of revenue rather than a torrent.  There are so many drips as to create a different kind of torrent but all of those drips must be collected through technology and there is the rub.  It’s a tough problem.  The media companies would rather foist the problem on others than either create a solution of their own or collaborate to create one.

But now the technology giants are correctly saying, that’s not exactly our problem either and we’re not going to do your bidding.  If anything the current controversy is the result of a completely uncreative approach to a problem.  In a situation where any number of solutions could be discussed, tested and tried out, one side has decided to dig in its heels and legislate.  That’s sad.

I am going to brush up on my French because I think I’ll be reading Wikipedia in another language soon.

So, what did you think?

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