Digital Assets

The recent fights of the music indus­try remind me a lot about the early days of the per­sonal com­puter indus­try. While I was still a kid then, it seems the soft­ware indus­try went through a sim­i­lar expe­ri­ence in terms of try­ing to fig­ure out how to deal with piracy. In this entry, I exam­ine what I con­sider to be the four stages of deal­ing with piracy of dig­i­tal assets.

I believe that any indus­try that is see­ing a move of their intel­lec­tual assets to a dig­i­tal medium will go through four basic stages: igno­rance, panic, pro­tec­tion and lit­i­ga­tion, quiet accep­tance. This was the case with soft­ware in the 80s and 90s, is cur­rently the case with music, and will soon be the case with movies. I sus­pect that other indus­tries like the pro­fes­sional pho­tog­ra­phy mar­ket are fac­ing sim­i­lar issues cur­rently or have in the past.

Stage 1: Ignorance

Dur­ing this stage, an indus­try ignores the prob­lem, either because it is seen as the domain of fringe ele­ments or doesn’t seem like it could pos­si­bly have a huge impact. Con­sider this the ostrich strat­egy. Exec­u­tives down­play the impor­tance of a new cul­ture (soft­ware crack­ers in the 80s, file-sharing in the mid-90s) and fig­ures that things will always keep get­ting bet­ter. At that point, there is a basic level of accep­tance that can be seen as a way to turn things to one’s advan­tage (for exam­ple, it was long rumored that Microsoft’s largely hands-off approach on piracy of early copies of Microsoft Word was a way for them to qui­etly gain mar­ket shares, and that peo­ple would even­tu­ally upgrade to paid legal copies over time).

Stage 2: Panic

A few sto­ries start pop­ping up in the press about the new phe­nom­e­non. Investors start knock­ing on your door ask­ing what you are doing to fight the ille­gal use of your prod­uct. Sales on a new prod­uct are lower than expected (could be because the prod­uct is a low qual­ity one but no one seems to men­tion that) and you need to find a scape­goat. Aha! Those nasty crackers/file-sharers/etc.. must be respon­si­ble. You start denounc­ing the new move­ment as dan­ger­ous to the foun­da­tion of cap­i­tal­ism, the proper order of the world and what­ever else you can throw in to stop the dis­tri­b­u­tion of your data.

Stage 3: Pro­tec­tion and Litigation

At this point, you real­ize that just denounc­ing the new spread of you intel­lec­tual prop­erty will not stop the flow. So you have to do some­thing big­ger. It is gen­er­ally at that stage that new con­cepts like encryp­tion or other pro­tec­tion mech­a­nisms start to make their way on your prod­uct. Some of the cases are more extreme than oth­ers and there is a never-ending sup­ply of new tools from ven­dors who see you as an oppor­tu­nity to unload stuff they couldn’t have sold if you were not panicking.

In the eight­ies, some soft­ware pro­tec­tion mech­a­nism went beyond soft­ware requir­ing such things as spe­cial­ized hard­ware com­po­nents to pro­tect your soft­ware. While those may make sense in a cor­po­rate set­ting, some com­pa­nies were try­ing to sell such solu­tions in the con­sumer mar­ket, fig­ur­ing that they could make a lot of money if every per­sonal com­puter user was required to use one of those. Soft­ware ven­dors that believed them ended up see­ing lower than expected sales on their soft­ware as users real­ized that the don­gles were too hard to use (in those days, the suc­cess rate even for peo­ple who had legally bought the soft­ware was very low) and bought a com­pet­i­tive prod­uct with­out the com­pli­cated protection.

At that stage, com­pa­nies are also tempted to start suing their cus­tomers. A few high vis­i­bil­ity cases are brought in the hope to scare the vast major­ity of the pub­lic. This suc­ceeds to some extend in tem­porar­ily reduc­ing the vis­i­bil­ity of pirates as such activ­i­ties become more quiet. No longer are peo­ple shar­ing ille­gal copies with every­one they know. At that point, they start reor­ga­niz­ing in smaller groups of peo­ple they know and share among those groups.

Accom­pa­ny­ing all this is gen­er­ally a pub­lic rela­tions and mar­ket­ing effort to “edu­cate” peo­ple in the evils of ille­gal copy­ing intel­lec­tual prop­erty. In the eight­ies, the BSA became known for their tag line of Don’t copy that floppy, which was widely laughed at by com­puter users. Sim­i­lar thing is cur­rently hap­pen­ing with the RIAA efforts.

The prob­lem at this point is that at this point it’s too late. The pros­e­cu­tion serve in high­light­ing that it is pos­si­ble to share such thing (as soft­ware, music, etc…) and more peo­ple try it because of the lure of free. The irony of such move is that by cre­at­ing high pro­file cases and by mar­ket­ing the issue, the indus­try gets more peo­ple to start copy­ing things ille­gally. Were it not for the high pro­file law­suit around the early Nap­ster, few peo­ple would have know about file shar­ing, for exam­ple. The prob­lem in such approach is that by suing the lit­tle guys, the press is paint­ing fights as David vs. Goliath ones with the big bad indus­try pros­e­cut­ing the small guy.

Stage 4: Quiet Acceptance

After a while, the indus­try then real­izes that piracy is par for the course and that there is no way it can com­pletely be defeated. At that stage, the indus­try then looks into ways to sal­vage its busi­ness and ensure that money can still be made. It is at that point that indus­try play­ers start exper­i­ment­ing with ways to add value to the the cus­tomer expe­ri­ence. We’re start­ing to see it with things like the Apple Music Store, which attempts to reach a mid­dle ground between pro­tect­ing intel­lec­tual prop­erty while still offer­ing what con­sumers want. Based on the recep­tion of the store, one could say that they are being suc­cess­ful at putting more restric­tions on users with­out users scream­ing about them.

So why look at this?

Part of my logic in terms of writ­ing this entry is that we are start­ing to see the sce­nario repeat itself in the movie and the tele­vi­sion indus­try. On the TV side, Broad­cast­ers are now push­ing for Broad­cast flags and users scream­ing. I sus­pect that the TV indus­try is now near­ing the end of stage 2 and mov­ing into stage 3. The music indus­try is deep in stage 3, the soft­ware indus­try has long reached 4, and the movie indus­try is start­ing to enter stage 2. Odd how it all seems to con­tinue repeat­ing itself.

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