Who will pay for intellectual works that are easily copied over the Internet, and why? I think the strongest component will be voluntary payment, a.k.a. patronage, and it’s already much more common than generally admitted. The core distinction is the following:
- People will pay after “consuming” (listening, reading, watching, playing) a work if they decide “this is great, I want to reward the author and/or encourage similar future works.”
- People will not pay (or only tiny amounts) before consuming a work they don’t know, by an author they don’t know, just because it happens to be on offer and they have some time to waste.
This is not how 20th century store shelves worked, but it’s indeed the historical normal which has only been upset for a couple of centuries, and it’s now reasserting itself thanks to the Internet. Let’s begin with a brief historical review of publishing and copyright.
Copyright is a recent legal artifice invented centuries after the printing press. Unlike most other laws it has no basis in natural social expectations or traditional behavioral codes. Before copyright any published work was simply public, and its further dissemination did not require approval by the original author. The Romans would have laughed at the notion that they needed Caesar’s permission to copy his Commentarii de Bello Gallico. Common decency required only to not misrepresent the author or his work.
How did creators get paid then? As Daniel Lemire notes in the linked post, writers simply did not expect to get paid and often still don’t. They write for publicity or out of desire to communicate. (Hey, this blog is free!) Artists creating physical artifacts such as sculptures and paintings could sell those, of course. Generally, though, creative professionals were paid only to create new works for some specific client and occasion. Other sources of income included staging performances, teaching students, or finding a benevolent patron of the arts, all of which required a good reputation.
So the traditional artist was obliged to manage his own career and create a solid body of work before he could begin earning serious money. Considering the vast legacy of European culture before the gradual introduction of copyright in the 18th century, this doesn’t seem to have worked out too badly.
Copyright & Publisher
Once the printing press was established and individual printing licenses had morphed into general copyright, the modern publishing industry could flourish. A lengthy state-granted monopoly on all reproduction of creative works made investments in producing and distributing printed books more attractive, and also created a strong incentive to identify promising authors and help them get published.
This change was immensely beneficial for authors. Once they had caught the attention of a publisher they would be taken care of. The publisher would pay advances until a book was done, cover expenses for editing and printing, ensure that copies were widely distributed, and even pay royalties on a successful title. Composers benefited in the same fashion, then performing musicians once music could be pressed on records. Finally, the same principle of monopolized distribution financed the modern film industry.
Customers could not complain either. The new system was much cheaper and more convenient than the old method of manually copying books, never mind hiring your own orchestra! On the other hand, the duplication mechanisms were inaccessible to the general public for both technical and financial reasons, so copyright did not impose massive artificial expenses and inconveniences. Indeed copyright was originally aimed at competing publishers, not at their audience. The latter accordingly received fair use exceptions, under the silent assumption that they could not competitively duplicate works anyway.
Continuing technical innovation eventually showed just how contingent the publisher system was on a specific set of technologies. Faithful mechanical reproduction combined a high initial investment with low marginal reproduction costs, resulting in a natural oligopoly that was not greatly deformed by the artificial monopoly of copyright. Electronics changed all that. They made mass reproduction even cheaper than the old mechanical presses while taking it out of publishers’ hands.
First, photocopiers and tape recorders (audio & video) enabled fast cheap duplication of intellectual works in every household. The quality was still pretty bad, but the next wave of electronic technology introduced digital storage and reproduction which took care of that problem. Publishers went into serious hysterics, turning copyright against their own audience in order to sabotage the new technology.
Finally, when the Internet made digital distribution effectively free, as well as quality-preserving and independent of any particular physical format or playback device, the old publishing system began its slow collapse that is still ongoing today. (“Self-published” tied with Simon & Schuster in the 5th spot of top ebook publishers for Q1/2014.)
The Internet greatly facilitates illegal copying of works protected by copyright, i.e. piracy, but copyright is consensually waived on a much wider scale. Collaboration and discussion on the Internet routinely involve copying extensive excerpts or entire works – text, images, code. Nobody cares because requesting explicit permission or exclusively linking without copying would greatly slow down communication, if not stop it entirely. Some server is always unavailable, some author unreachable, some URL obsolete, or some data has unexpectedly changed.
So when it comes to sharing posts in social networks, reusing software under permissive open source licenses, or publishing scientific articles in open access journals, the “copyright” that technically still exists has factually been reduced to a right of recognition. Whether by habit or explicit license, usage is free and copying is fine as long as author and work are not misrepresented. Only a tiny fraction of information distribution on the Internet employs some form of paywall.
Finally, there is the vast body of works dating from before copyright was introduced, or whose copyright has lapsed. A huge number of free books and paintings in this category has already been digitized, and the first music and film recordings are now slipping out of copyright as well. Not only that: artists realizing the difficulties of making any decent amount of money from directly selling their creations are increasingly offering them for free.
So much for the impact of technology on the rise and fall of copyright. Now let’s look at the same technological shift from a purely competitive viewpoint.
When intellectual creations are only available as physical artifacts distributed through retail outlets, the companies making and selling these artifacts act as gatekeepers: they entirely control which audience is presented with which products. This had a twofold effect. First, creators are limited by the gatekeepers as to who can buy their products at all – which may be no one for those who cannot find a publisher.
But second, the audience is likewise limited by the gatekeepers as to whose products they can buy – and that means whichever creators do make it past the gatekeepers have a virtually guaranteed audience. What are you going to buy when you’re bored? You’ll have to choose from whatever sits in the local brick & mortar stores. A product would have to be extremely bad in order to not sell under these conditions, so total rejection is rare for those who have been accepted by a strong publisher.
Some thought that once the Internet allowed creators to bypass the old gatekeepers, everyone would sell everything to everyone – a classic Donald Duck fallacy. What happened instead was an explosion of supply with very little corresponding increase in demand. With global Internet distribution, total rejection is normal because the entire world of creators competes for every single customer (at least within the same language), and customers are always limited by their available entertainment time.
Total audience size ultimately limits total demand, and with zero-cost instant global reproduction a tiny fraction of creators can easily fill global demand entirely. Accordingly, prices are driven down to zero – unless customers volunteer to pay because they like to support the creator. Hence the first business need for digital artists is to identify and “engage” with their audience, i.e. carve out a niche that specifically wants their product rather than the other five million products on offer.
Winners & Losers
Who profits from this situation? One one extreme, a global elite popular with everyone – big household names, plus the occasional “lottery winner” like Angry Birds. They can now sell faster and more easily to a greater audience than ever, while retaining more of the profits. On the other extreme, niche specialists whose audience is generous and loyal but small and geographically widely distributed. Before the Internet, they could at best reach a fraction of this audience through fanzines and mail order.
The losers are everyone else, i.e. those who target a mass audience but aren’t quite as good as the global elite. They are in direct comparison to superior alternatives, and cannot compensate with local availability as in the day of physical stores. Mediocre works can no longer expect decent sales just because some publisher shipped them to its usual retail outlets as part of the usual package deal. A recurrent theme among game post mortems I’ve read in the last years was solid but unremarkable titles failing to sell well enough for a sustainable business.
Having outlined the situation, we return to the original question: how can intellectual works earn their creators an income in the 21st century, if at all? Creative industries took several stabs at this problem.
Copy protection (or Digital Rights Management, DRM) is an attempt to artificially recreate the barriers private customers faced in the days of mechanical duplication. As it turns out DRM is easily circumvented in products that don’t require a continuous online connection to function, which includes most games and virtually every other intellectual creation. Aside from being unreliable, DRM also fails to reduce the massive competition from digital works that are legally free or extremely cheap, as enumerated above. On the contrary, intrusive DRM tends to make those alternatives look much more appealing in comparison. As such the idea that DRM is the savior of digital artists has been largely abandoned. It seems effective only for a small number of must-have products that have a built-in mass audience on release day.
Low Price, High Volume
Since Internet distribution has extremely low marginal costs, one obvious angle for higher profits is to reduce unit prices so as to increase audience size. Popular concepts include free-to-play games that are financed by advertising or the occasional “whale” customer gorging on consumable IAP, as well as ultra-cheap music streaming services like Pandora and Spotify. How did that work out? In short, it didn’t. Total available audience time continues to cap total consumption, and the audience size required to make a living with free or almost-free products is so huge that most artists simply don’t stand a chance.
Revenue in mobile video games is concentrating at the top, too. On iOS, SuperData Research found that the acquisition cost per install has already exceeded the average monthly revenue per user. That’s a death knell for disposable clone games that rarely get played longer than a week, let alone a month. And VisionMobile found that 50% of iOS developers and 64% of Android developers make less then US$500 per app and month, with only 2% of developers responsible for 54% of total app store revenues.
If you’re selling PC games there’s also the nasty wrinkle of compatibility issues. As Puppygames realized, it’s not financially feasible to offer any kind of individual tech support if Steam sells your game for $1 a copy. The result is much resentment on both sides, as of course even customers paying $1 still feel entitled to a working product. Now consider that any non-zero price will eliminate a large chunk of the audience, and a low but non-zero upfront payment seems about the worst possible strategy. This agrees with some mobile anecdotes I examined last year, as well as Jeff Vogel’s latest advice.
Realizing that neither copy protection nor extremely low pricing guarantees a living wage, the digital artist’s next stop was crowdfunding. Since customers tend to pirate any songs and books that aren’t unsustainably cheap, Connor Tomas O’Brien suggests that artists demand up-front payment instead:
[W]e need to create stuff only after we get paid for it, not before. If we create great work and send it out into the world using a delivery mechanism conducive to piracy, it’s no wonder we end up getting screwed.
There’s a new problem here, though, namely that customers are supposed to pay on good faith for products not even close to finished. While less problematic for music and writing, this has already led to pronounced Kickstarter fatigue in video games. Indeed, crowdfunding “investments” are impossible to recommend except for creators with a great track record and professionally-made projects. So crowdfunding is another Internet-age idea that sounds liberating at first, but upon collision with reality is more likely to restrict generous incomes to an elite group of proven creators. Kickstarter newbies are essentially requesting donations, and the general public won’t fail to recognize this eventually.
So at long last, we come to what O’Brien and many others disdain as “resorting to begging:” rather than directly setting a price on redistribution of your work, you nicely ask for whatever money a patron feels like giving to reward your past efforts and support future ones. Horribly degrading, right? Not so fast. There are many reasons why patronage is likely to return as the dominant form of financing for intellectual works, for those creators who do require external support.
- While consumers may grudgingly pay premium prices for a few mass-market top titles just because piracy is too onerous, I suspect most people spending significant amounts of money on niche products do so primarily because they wish to support the creators. For example, wargame specialists Slitherine/Matrix have “a lot of people who are committed early adopters buying our games on day one” – and a thriving back catalog of easily pirated PC games. Tor Books UK, serving a similarly “close-knit genre community,” saw no increase in piracy after one year without DRM.
- Patronage is already a large aspect of crowdfunding services like Kickstarter. Expensive “stretch goals” that deliver fan articles like pewter figurines, T-shirts, making-of videos, and similar fluff are both relatively overpriced and external to the intellectual work ostensibly being crowdfunded. They are donations in disguise, and more or less openly acknowledged as such by both sides of the transaction. Moreover, even basic funding can simply vanish and should thus be considered a donation rather than a preorder.
- Customers are perfectly aware that both digital and physical stores offer frequent bargain-bin sales, with titles massively discounted after just a few months. So paying the official release day price is now itself a form of patronage, and often addressed as such: “I’ll pay full price because I want to support the developers.” Conversely, if there’s anything dubious about a title there’s swift punishment in the form of “I’ll wait for a sale.”
Ari Herstand summarizes the situation for musicians: forget the album, instead ask for money – either directly or for anything imaginable that’s even vaguely related to you and your music.
What’s wrong with a 23 year old who loves a band paying $250 for a PledgeMusic exclusive, $5 per video released on Patreon, an $18 ticket for their concert, a $25 t-shirt and a backstage “experience” for $50, but never download an album or buy a CD? What’s wrong with that?
The album gets the fan in the door. Gets her hooked. The album is only the introduction. No longer the end game. The album is the gateway. And the album is found on Spotify, YouTube or ThePirateBay with a couple clicks.
Speaking of concerts, this used to be the standard recommendation when musicians asked how to make money, but even Pomplamoose lost money on a successful concert tour. Instead they derive their income from iTunes, Loudr… and Patreon.