Sunday, March 14, 2010

Dams and Water Wheels

A story is told of three monks in the Middle Ages wondering about the number of teeth in a horse's mouth. One suggests their answer must lay within the greatest authority on all topics, the Holy Bible, and a long discussion then ensues about which passage in the Bible would contain the answer they seek. After much debate, one monk simply says, "Why don't we just go look at a horse to see for ourselves? There's a horse right there in our stable." Though shockingly pragmatic, the idea is also heretical for its inference that the Bible cannot be the authoritative source on all topics. The other two monks become violent and beat up the third monk for such outragous "arrogance."

This story sometimes comes to mind when I discuss my (allegedly radical) ideas about digital content distribution to old saws within the industry. For many people already well vested in their livlihood (or about to be well vested, or even hoping to be well vested), they put far too much energy in defending their version of the world as they wish it to be... at the expense of really seeing at the world as it currently is.

Of course, this is all my opinion, but it's worth emphasizing—and re-emphasizing, over and over, ad nauseum—that it took me ten years to change that opinion. I didn't merely flip a switch one morning and suddenly begin spouting radical ideas about digital distribution. Ten years ago, I began with a staunchly traditional position that DRM should be authoritarian and infringers of digital rights should be subject to harsh prosecution. Ten years ago, I felt piracy was ethically wrong, that piracy could be stopped, that piracy should be stopped, and that all those those millions of people around the world who used BitTorrent and Pirate Bay were thieves. Ten years ago, I felt the prices for movies, music, and software should only be set by content producers and if consumers didn't want to pay that price, they shouldn't pay. Ten years ago, I felt piracy would tear the system into shreds and consumers would be the only ones to blame. Ten years ago, I felt that if only producers could convince consumers that what they were all doing was wrong, things might turn around. If only producers could show the world the consequences of what they were doing would end with a wave of bankruptcies across all content creation industries... if only, if only, if only. That's how I felt ten years ago.

But a lot has happened in ten years. I've seen businesses adapt to change and thrive, and other businesses not adapt and fade from view. I've also seen that, in the right circumstances and despite what I want to be true, piracy can help as much as it can hurt. Thus, I have gradually changed my position from an arrogant (and financially dangerous) attitude of, "This is the way the world should be and if the world doesn't fit into my inflexible and narrow vision, I'll use every tool in my moral and legal arsenal to stop those who endanger that world vision." I consider this attitude arrogant because it's a not-too-distant grandchild of those monks saying, "The answer must be in the Bible. It has to be. To suggest otherwise is heresy." Whenever any radical and innovative business model threatens the status quo, the orthodoxy never waste time calling proponents of these "uppity" new models as "drinking the Kool-Aid", "careless", "foolhardy", and "devaluing the legacy". Sometimes, those recriminations are even justified, but sometimes they're not, and the diamond in the rough is being shaped before their very eyes... if only they could expand their worldview enough to see it.

Fortunately, I'm able to observe the world objectively. I have no vested interests clouding my judgment. I haven't pumped millions of dollars into a movie studio or a record company or software company, so I have the luxury of making predictions with zero financial benefit whether I'm right or wrong. One could argue that, because I have nothing to lose, my assessments and conclusions carry little weight. However, I feel exactly the opposite is true: because I have nothing to gain by my predictions and because I once held a contrary and traditional position—i.e., that "piracy is wrong"—my assessments and conclusions should carry even more weight than the arguments made by the establishment to conveniently maintain their current livelihood. To be honest, I don't want my conclusions to be right. I hate the conclusions I've arrived at. My conclusions point to a world of more effort and less money for content creators, where newer and more reliable revenue streams are frustrating to identify and exploit. Nonetheless, what I want or don't want doesn't make my conclusions feel any less true. I would hope others keep that clearly in mind whenever they are eager to discount my position.

Most people with vested interests try to force the rules of this new Digital Age onto an analog world ("This is the way the world should be."), but I prefer to look at the rules of the Digital Age as they actually exist ("Why don't we just go look at a horse to see for ourselves?") and draw conclusions from those observations without any specific end goal screaming to be met. What does the world actually look like? What are these new tools? How can they best be applied to maximize their usefulness? What can be accomplished with all these crazy new options? This means I don't start with a $15 million movie and say, "how can we bring a budget up to that amount by cracking down on piracy?" Instead, I ask, "Can we even crack down on piracy? If not, how do we use piracy to our advantage, and can a $15 million film be made? If not, what budget could be made with piracy? How can piracy help us?"

I don't feel the way I felt 10 years ago about digital content for a few reasons:

  • I no longer feel piracy can be stopped.
  • I don't see piracy as the threat I once thought it was. On the contrary, hyperdistribution could herald a new age of content distribution if we can ever shed our fear of it.
  • The Digital Age has a new set of ground rules most of us don't fully understand and, thus, we haven't completely embraced.
  • Instead of looking at the world by defending it as we think it ought to be, we should be thinking of how quickly we can adapt to it in order to minimize disruption.

When people don't seem to get what I'm saying, I sometimes shift the situation to a different timescape to illustrate the concepts in play. Let's rewind the clock to 1950:

Jobs were aplenty in America. You got a job, you worked for a corporation, you punched your card for forty years and left with a fat retirement check. If you were to transport those 1950's workers into today's fluid economy, they'd be shocked to see how company loyalty has evaporated and how commonplace it is for Americans to work three or four jobs in their lifetime. Of course, we live this reality. We grew up in it. It's normal. So we've already come to accept it all as a fact of life and dealt with its nasty implications. Unfortunately for our wayward time travelers, they'd decry this "injustice", call it unfair, and insist it be immediately rectified. And then we'd laugh at them like we would have laughed at horse-and-buggy drivers insisting we bring back the horse and carriage. Or typewriter manufacturers insisting we bring back typewriters. Or handwriting teachers insisting we bring back the quill. You can't put the genie back into the bottle.

We are in precisely such a situation now. We stand amid a swelling floe of evolving content distribution channels. Nobody has a crystal ball, including me. But history teaches us that the ones who always lose these sorts of battles are those who resist newer and more efficient technologies. Whenever more efficient technologies emerge to threaten the status quo, we always see same phases: vilification and violent intolerance, contempt and disparagement, reluctant acceptance, and inclusion into the orthodoxy. So doesn't it make more sense to start viewing newer technologies without bias and adopt them early on in order to maximize their intrinsic strengths before the competition does? Does it really make sense to apply Analog Age rules to a Digital Age?

This is why I became such a huge fan of Techdirt, which does a superb job by explaining basic economic principles, and how the Digital Age is simply acting out those basic economic principles. After a few months of reading Techdirt, I got a clear grasp on how to build a new business model following the new rules of the Digital Age:
  • Leverage the internet to distribute content as widely as possible.
  • Don't confuse price and value.
  • Use infinite goods to increase the price of scarce goods.
  • Connect with fans.
  • Give fans a true reason to buy by offering a non-copiable "generatives" like convenience, patronage, authenticity, exclusivity, personalization... and charge a premium price for those generatives.

By understanding how the world works in the Digital Age—and I mean by really looking at how the internet is used without bias for how it ought to be used (including a bias about how content has been previously paid for, what Marc Cuban calls "legacy delivery")—I firmly believe a powerful and unbeatable business model can be built. Why? Because instead of spending your resources trying to dam up a river, you're spending resources building a water wheel to harness the inherent power of that river. You can pay lawyers to fight the unwinable war on piracy, or you can spend that same money to connect with your customers more and create better scarce goods that are tailor-made for a Digital Age. Which approach seems to have the better competitive edge?

Feel free to ignore this last part, but if you don't embrace the internet's inherent power, you can be sure your competition will.


Jessica said...

I am a big fan of abiding by what exists over what one thinks ought to exist - and what's happening with digital content and distribution are no exception.

The biggest challenge is going to be keeping up with the changes. If people cling to the past, they're not going to have a chance.

Anonymous said...


Cannon Hamaker said...

The story has an alternate solution, that doesn't result in a beating. The monk need merely find a verse of scripture that he can interpret as suggesting they go look in the horses mouth.
Rather than hammering logic at illogical people, we need to nudge them into a position where they can find the path to the solution themselves.
Unless you enjoy a good beating, that is.

Luci Temple said...

Great post :)

Crosbie Fitch said...

Cannon Hamaker, hence my discovery that the US Constitution didn't empower Congress to grant copyright in any case - only to secure the author's exclusive right to their writings. See