Entertainment Industry Still Insisting That Gov't Protectionism Is The Only Way To Compete

from the oh-really? dept

A few months ago, we responded to an ill-informed opinion piece in the UK's Independent by Stephen Garrett, who runs a TV production house. In his essay, Garrett trotted out all the old falsehoods about how file sharing is the same as theft and that ISPs absolutely need to stop file sharing or the entertainment industry will die. On top of that, he relied on the tired old argument that file sharing "costs jobs" and those jobs are "needed" in these economic times. That's ridiculously laughable, of course. Inefficient industries and inefficient jobs (such as those supported by gov't monopolies) are exactly what's not needed these days. However, it appears that Garrett has not gotten the message (or, would simply beg for a gov't handout, rather than adjust his business model to match with the economic times).

Steven Hoy points out that the Financial Times is the latest UK paper to give Garrett space to put forth his opinions on the subject, and so we get yet another misguided rant about how the gov't and ISPs need to protect his own inability to craft a better business model.

Piracy (think Johnny Depp) and file-sharing sound harmless enough. But as it involves the widespread appropriation of intellectual property without payment, file-sharing is better described as file-nicking. It is theft. Hundreds of millions of pounds are haemorrhaging out of the film and TV industries, just in the UK. Jobs are being lost and companies will fold. This is not in contention.

Actually, it is very much in contention. It's almost pointless to reiterate this point, but if you can't understand the difference between someone making a copy and someone taking away a good, it's difficult to see how you should be given responsibility over running a business. It may be infringing, but it is not "theft." There is no "loss." Nothing is "missing." The only problem is a business model issue -- that is that you, Stephen Garrett, failed to give people a good enough reason to buy something. That's your fault, and your fault alone.

If any jobs are being lost, it's because you failed to manage your business properly, recognize the new market that technology has created, and learn to embrace it in a profitable manner. Others are doing so. You whine and ask the gov't for a handout.

In this parallel universe, consumer rights have acquired the status of a fascistic mantra. What the consumer wants, the consumer gets, even if he does not want to pay for it. Everyone has, to some extent, colluded in this fantasy, blocking out the advertisements while consuming -- for "free" -- newspapers, films, television shows and music on legitimate websites. Now, and this has happened very quickly, consumers assume they have a right to these things. Free, and forever. Unfortunately this fantasy is unsustainable.

Why is it unsustainable? It is, in fact, no different than any marketplace where competition exists. Let's say, for example, that you're a pizza maker, and it costs you $5 to make a pie, which you then sell for $10. Not a bad business. Now, a competitor comes along, and figures out how to make pizza pies for $3, and start selling his (which are just as good as yours) for $5. Now, you're in trouble. What do you do? Normally, you figure out how to compete, or you go out of business. You don't go crying to the gov't about how you're going to lose jobs if the gov't doesn't stop others from making the cheaper pizza. You come up with a better pizza or a more efficient way of making the pizza and you compete and get people to buy your pizza.

Economically speaking, this is the identical situation, because all that matters to a business is the margin. The fact that new technology has made it possible for your content to have a marginal cost of $0 is the same thing as someone figuring out how to make a pizza and price it at your marginal cost. It's just competition, and the answer is that you learn to compete, not that you blame the more efficient system or anyone who enables it.

All of these cost money to produce; in the case of TV dramas such as Spooks that my company produces, a huge amount. At the point when these creative products enter cyberspace, they are only partly paid for. Producers are dependent on revenues from DVDs and international sales, which piracy hits.

Of course all of these things cost money to produce. No one has said otherwise. But that's why you put in place a better business model that offers something unique that they can't get elsewhere for free. You use those unique scarcities to make a profit and recoup your fixed costs. That's just business. No gov't protectionism needed.

Piracy happens on the internet. The greater the bandwidth, the easier piracy is. We in the creative industries have asked (nicely) that the internet service providers should help tackle piracy by responding in a graduated way to customers of theirs identified as offering or downloading pirated material. The sequence would be along the lines of a warning letter, a "squeezing" of bandwidth, a further cut in bandwidth and then the ultimate sanction: a limitation of service.

I read that logic to be the same as "automobiles happen on roads, the nicer the roads, the more automobiles we have. We in the horse carriage industries have asked (nicely) that the road builders should help tackle automobile dangers by responding in a graduated way to drivers identified as speeding at rates beyond what a horse carriage can run. The sequence would be along the lines of a warning letter, a fine for speeding, a further ban from driving on roads, and then the ultimate sanction: a limitation on driving altogether."

Stopping progress because you're unable to adapt is no excuse.

Having the right to use the internet to access entertainment brings with it the responsibility not to act in a way that endangers every future film, TV show and music track. In particular, the UK government needs to use Tuesday's Digital Britain report to compel ISPs to work with us on a graduated system of penalties for file-sharers. Doing nothing bolsters the notion that nothing has value. The logical outcome is that, within our lifetimes, there will be nothing of value left.

No, Mr. Garrett. What you are asking for is for the internet to change to adapt to the way you liked to run your business. But that's not how the world works. Your unwillingness (or, perhaps, inability) to change is your problem, not the internet's. The internet was designed as a communications medium. You are trying to force it into being a broadcast medium, because that's the only business model you know, and you're unwilling (or unable) to learn how to create a business model on a communications platform. The only ones who should be "sanctioned" or face penalties is you, for your own inability to compete.

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Entertainment Protectionism Doesn't Create Jobs, It Destroys Them

from the welcome-to-econ-101 dept

Reader Darren sent in a link to an "opinion" piece in the UK's Independent by Stephen Garrett, a managing director of a TV production house that apparently makes some popular UK TV shows (he names Spooks, with which I am personally unfamiliar). The article is basically no different than any of the thousands of poorly thought out and badly argued demands from entertainment industry execs for government protectionism in the face of the giant "internet threat." Garrett goes through all of these mistakes pretty early on: comparing file sharing to the theft of physical property, twisting basic logic around to suggest that ISPs bear the responsibility of stopping file sharing (rather than, say, the entertainment companies learning to adjust their business model in the face of a changing marketplace), and playing the old and easily debunked ripple effects card in discussing the "damages" done.

But rather than going through those same old tired arguments again, this seemed like a good opportunity to take on a later argument he makes, which I've heard from others as well:

At a time of economic downturn, saving jobs and securing economic activity is more important than ever. Investment in new forms of bringing entertainment to the public depends on legitimate sales of material, whilst lost opportunities of innovation is the tab picked up by those who do pay for content for those who refuse to do so.

This, like Garrett's earlier points, shows a fundamental misunderstanding of economics. Saving jobs and securing activity is not more important than ever if those jobs and that economic activity are inefficient, unnecessary or hinder other important economic activity from taking place. Historically, almost every example of government protectionism has been to protect exactly those types of jobs and economic activity, and the end result is disastrous. Rather than adapting to changes in the market, the protected industry holds onto the past, while those industries in other countries adapt, evolve and improve. In the end, the "protected" industry simply can't compete, the jobs are lost anyway, and it's much more difficult for the new industry in those countries to grow and catch up to foreign competitors.

Garrett's suggestion of special protectionism in the entertainment industry in the UK is exactly the wrong solution for the industry and would lead to many more problems down the road. I would hope that people in the government in charge of deciding this stuff would understand this -- but so far, the UK's Culture Secretary has shown himself to have difficulty grasping some basic economic realities, so don't be surprised to see him buy into this sort of argument.

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