Archiv der Kategorie: Economics

Economics, quicklink, US Politics

Much Ado about not much.

The McKinsey Quarterly looks at the incentive effects of the Bush dividend-cut proposal and decides that it, well, is largely a placebo. Won’t hurt, won’t heal, as most shares are held by tax-exempt entities anyway –

“The fact, however, is that tax-paying US individual shareholders own a minority of all US shares?28 percent in 2002, whereas tax-exempt US institutions and individuals who hold shares in tax-exempt accounts owned 61 percent. (The remainder was in foreign hands.) … Since these investors are indifferent to the issue of taxes on their dividends, they are unlikely to set in motion the kinds of changes in their portfolios that would drive up share prices.”

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compulsory reading, Economics, intellectual property rights, music industry

They’ll get the pricing wrong.

For at least five years. If you search my blog you will find that I have repeatedly said that all attempts to sell musical downloads will suffer from problematic price policy. Apple’s new itunes download service is no exception. True, it is probably closer than anything previously seen to actually enhancing the user experience with digital music. According to wired news,

“… opening day downloads equaled the number of songs legally downloaded over a six-month period last year.”

But it is nonetheless bereft with a pricing dilemma. A dollar a tune is not always a justifiable price, even though NY Times columnist David Pogue is ridiculing criticism of this pricing policy.

In fact, for most downloads it is clearly too much, even though things are cheaper when an entire Album is downloaded – for 10 dollars. While a tenner a disk makes downloading for some albums cheaper than your local record store, it is, on the other hand, probably a prohibitive price for DRM protected material, and, moreover, a price justifiable only due to the channel conflict with the non-digital distribution universe, which still makes it necessary to spend millions on marketing songs to people who are not interested in them anyway. It is a price only justified if the advantages of the internet, especially in the realm of marketing to a smaller, but more appropriate audience, are not exploited.

Thus, a dollar a buck can just be the beginning. People will continue to negotiate this price by using KaZaa and Grokster. Record companies will continue to try to scare unwitting conservative politicians about “the end of property” as well as send cease-and-desist letters to people sharing songs.

The big unknown variable is the political one. Will politicians be willing to understand the conventional definitions of property are just not appropriate in the digital age? Or will they allow the record industry to gain a windfall from perpetuating the economic structures of previous times for an unknown amount of time? I firmly believe that eventually, the social and economic institutions will adjust to a new reality.

But again, it is a matter of pricing. This time, a matter of the price that our information societies will be willing to pay for patrolling people’s hard drives and digitally fingreprinting their lives. Maybe US Sen. Santorum’s intervention telling homosexuals that they do not have a right to privacy came at the right time. I don’t know. But it is more important now than ever to tell people that digital privacy is an important issue. Something, many people were concerned about when it wasn’t a real issue yet, back in the 1980s.

Now that it is one, people don’t seem to realise that the same mechanism that allows to reduce the prices of individual songs could be the reason for the end of civil liberties as we know it. [ author off to pay to see a film in a real movie theatre…]

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intellectual property rights, Iraq, music industry, oddly enough, quicklink

They take no chances.

If this report by Telepolis is right, then Hillary Rose, the former chief RIAA lobbyist, is currently rewriting the copyright laws of Iraq. Just in case the Iraqi ideas about intellectual property rights should differ from the Digital Millenium Copyright Act (DMCA).

Actually, the journalist Gregory Palast is not unjustifiedly wondering whether the combination of sharia and the DMCA would result in hands being chopped off for filesharing. Hmm, I guess I am favoring a kinder, gentler version – just chop off the index-finger. After all, isn’t it always that bad guy that clicks on ‘download’?

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Economics, quicklink

Semi-daily discussion on Sen’s paradoxon

A neat little discussion occurring at Brad DeLong’s Semi Daily Journal, regarding the question whether Sen’s paradoxon – which basically says that it is possible to dream up utility functions which would allow liberalism and the pareto principle to be in conflict – is actually a paradoxon. And it is evolving into a real debate about the different meanings of liberalism/libertarianism. Be sure to check read the comments, at least flip through them if you don’t have two hours to spare…

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compulsory reading, intellectual property rights, media, Political Theory, web 2.0

De-Merging Patriotism

Last year, Michael Wolf, a director in McKinsey�s New York office, published an article in the WSJ (here via McKinseyQuarterly) explaing that market forces – especially a sluggish advertising market and the general trend to digital distribution – would continue to pressure media companies to merge into ever larger entities. Mr Wolf’s article was triggered by a US appeals court decision to allow media companies to own both cable systems and local broadcasters in the same market, a decision which he seemingly supported on grounds of value creating synergies, while knowing very well that the media are not just one business among others –

“Critics of media concentration will now wonder how much more wheeling and dealing can go on before there are but one or two juggernauts controlling every image, syllable, and sound of information and entertainment.”

He also explained why he believed that more hierarchy would not yet pose a problem for the world –

“Actually, the industry has a long way to go yet before it reaches that point. There are more than 100 media companies worldwide, with more than $1 billion in revenues; and entertainment and media are still fragmented compared with other industries such as pharmaceuticals or aerospace.”

That was last year. Just when the whole Iraq thing started. And last year, I think I agreed with Mr. Wolf’s efficiency conclusion and pharmaceuticals analogy, arguing like he that

“[w]hile the media mogul archetype may be Charles Foster Kane, the better analogy is Jack Welch in his early GE days, in pursuit of strategic fit and maximum returns…” –

or, to make the argument more fun, along the lines of Michael Kinsley’s brilliant article “Six Degrees of America Online” (which is now premium, how surprising…).

Kinsley’s still rather useful point was that hierarchical control of today’s media conglomerates is probably not as dangerous as many may think because, well, it’s incestous and competitive at the same time. AOL owns a chunk of this parent of that joint venture with Microsoft who are in bed with Murdoch in Asia and cooperate with the state run television in Bulgaria. And never forget the promiscous EMI. Kinsley had a point. Upstream or downstream, the convergence value chain does look like a conglomerate soap opera. Or, if you prefer the same conclusion in McKinsey-speech –

For a German example of this just look at some of the people who are going to be on the ProSiebenSat1 Media oversight board once Haim Saban will have finalised his purchase of roughly 25% of the German eyeballs in early June this year. His Malibu neighbour Thomas Gottschalk, who’s a host on ZDF television, and Helmut Thoma, former CEO of RTL+, part of the Bertelsmann owned RTL group, for which he is still apparently still consulting.

But now, after seeing the enourmous power the media had in establishing what behavior is right or wrong on both sides of the transatlantic media rift, I no longer agree. Of course, it is not hierarchical control of large chunks of access to people’s brains per se that is problematic. But I’d say, it does become a huge problem if some big players succeed in setting the agenda for everyone else. Think of the American “WarNow!LetsGoAndKickSomeAss”, or its European antithesis, “NoWarEverBushIsSaddamInDisguise”.

There comes a point when deescalation is just no longer possible, when myths of reality established by the media become an imperative for themselves. When whatever could be true becomes true by pure repetition. And having more, and more smaller, media entitites will allow for a slowdown of this process.

Media is a content business where there are economies of scale primarily in the realm of risk structuring and distribution. Economics of scope primarily exist in cross-media publishing and promotion. So there are reasons for integration. But having witnessed the consequences of the described mechanism on a previously unintelligible scale, I believe efficiency considerations for media corpoations have to be looked at from a different angle if a merger is considered the appropriate therapy.

I am not proposing any policy here. But I’d say media concentration control has become more important now than ever. I am not proposing state interventionism per se – that would probably cause as many problems as it would be trying to solve – but there must be other ways to ease the economic pressures than merging. Less taxes for tv? I don’t know. But I think this is an issue that should be put on the public agenda here, there, and everywhere rather sooner than later.

Having just written this, I can already hear people scream – yeah, but what about the end of the bandwidth restriction, what about the internet, what about those amazing new context filtering technology, blogging – isn’t that offsetting the Murdochs of this world?

Hmm, well. As much as I like doing this, I’d have to say ‘blogging-schmogging‘. The internet is not as decentralised as one would believe (how many internet booksellers do you know off-hand?), and for the time being – despite all the blog-bubble-induced discussion how it is changing the face of journalism on this planent – much of blogging is predominantly a different, extremely useful, qualitative (ie, non statistical) kind of collaborative filtering (like the amazon recommendations), bringing together people – “Other people who looked at this blog also read this article in the NYTimes.” I’m not saying it can’t work.

But it cannot offset the reality shaping power of conventional publishing. At least not yet.

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intellectual property rights, quicklink, USA

Digital timeshifting.

Update

Please note that the legal situation regarding file sharing in Germany has changed since and is likely to change again.

Now that , a US court has denied the forced closure of P2P services like KaZaa (from heise online), as they are also used for legitimate purposes, look forward to intensified attempts to target individual users, in the US (from Salon), as well as over here (from heise online). BUT: private downloads of songs are in all likelyhood not illegal in Germany (as even the European president of BMG accepted in 2002).

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almost a diary, intellectual property rights, music industry

Champagne Blogging

this is my first attempt at live-blogging, so give me some credit here… i am writing this on a public terminal in the museum fuer kommunikation in frankfurt, typing with only one hand, as i am holding a glass of champagne in the other. it is the “long night of museums” here and on of the special exhibitions in this museum for communication puzzled me – it’s an exhibition about mp3 and the digital music revolution, including terminals running the popular “kazaa.com” filesharing software.

did i miss something? i thought the revolution was still very much going on? what is this supposed to mean? is p2p filesharing already a part of history? could that be the reason no major label objected to this exhibition and it was even sponsored by Steinberg GmbH, maker of the well known studio software “cubase”.

i don’t know, but now is not the time to answer question of historic importance, so i will return to the party and leave you probably as puzzled as i am – albeit without champagne.

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German Politics, intellectual property rights

The Other War

One of the real problems of the Iraq induced congestion of the media is that there is so much more important stuff going on that no body hears about – well, at least, that a lot less people hear about than should hear about it.

One of the big issues which currently receive a lot less attention than they deserve is the war concerning intellectual property rights. Yesterday, Berkeley’s Bradford DeLong posteda list of what he believes are the five most important questions facing the world economy today. Number three reads as follows –

“3. How will the current intellectual property wars be resolved? Will they be resolved in a way that greatly increases the profits of CD and movie companies and that slows the adoption of broadband and other advanced information technologies? Or will they be resolved in a way that implicitly or explicitly confiscates a bunch of the intellectual property of CD and movie companies, but that gives consumers and other users enormous incentives to adopt broadband and other advanced information technologies? It is clear to me that the second would be better for economic growth, but that the first is more likely.”

He’s right. Ttwo weeks ago, the US Supreme Court ruled in the case Eldred vs. Ashcroft that it was legal for the US Congress to extend the copyright protection, the “Sonny Bono Copyright Term Extension Act”, which extended by 20 years both existing copyrights and future copyrights, for the law does not extend the protection forever. For Disney (and the like), it was a case about cash flow from exploiting the Mickey Mouse’s of this world. For everybody else (immediately only for those living in the US, of course), it was a case about the balance of private vs. public interests – in the economic realm but also far beyond. The plaintiff’s case had been supported by an amazing amount of intellectual capacity, including various Nobel Price laureates.

But private interests prevailed. It really looks as if owners of intellectual property are able to use their current economic clout and and a socialised narrow, conventional definition of property to put their short term interests above the social long term ones.

The next big battle in the IP war is probably the EU directive 2001/29/EG, which is an attempt to harmonize European copyright regimes with respect to the digital age. While theoretically maintaining the right to a limited amount of personal digital copies of copyrighted work one owns, the directive also contains a clause prohibiting the circumvention of any technical copyright device in order to exercise the right to a personal copy. Thus the private copy clause will in all likelihood be useless following the implementation of the EU directive into the member states’ national legal frameworks.

But resistance is not futile. So far, the directive has only become national law in Greece and Denmark. All other nations let the deadline pass. Debate and opposition are growing, and there are even legal doubts about the directive’s validity. It may be late, but not too late. Click here for a summary of the state of the national legislative processes of all EU member states.

The site also features the web addresses of online petitions in most European countries. It is not too late to sign.

To sign the German petition, just click here.

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Economics, US Politics

Understanding The Bush Economic Stimulus Package. W’s getting scared.

I don’t know if I am understanding the package correctly. Most of those throwing their opinions in the ring certainly know American politics a lot better than I do.

Their predominant interpretation of the package is that it is not actually intended to stimulate the US economiy but to get Bush reelected in 2004 – that’s why he is handing out even more cash benefits to wealthy Americans not likely to increase their marginal consumption. The Economist tells us that

“[i]t certainly lays Mr Bush open to the familiar charge that he is favouring the better-off. One study has shown that the average annual benefit for people earning less than $10,000 a year would be $6, while that for those with million-dollar-plus incomes would be more than $45,000. Conventional economics suggests that the richer people are, the less propensity they have to spend each additional dollar of income. America might have a long-term need to boost savings rates, but that will not help stimulate the economy.”

Also check these two links [ 1 , 2 ] to Berkeley economics professor Brad DeLong’s blog, if you want.

It is probably right that Bush had his reelection prospects in mind when designing the tax-cut [ ok, he did not do it himself ;-) ]. But I believe, the package’s design also reveals something else: His team is already getting scared. They’re not too sure they’ll be able to supervise the already announced tax-breaks in 2006 to 2010. So he’s delivering to his constituency now as the promised tax-cuts could be repealed later on. Timing is the keyword here. W clearly remembers the fate of his dad back in 1991. He lost the Presidency to Clinton in 1992 because of the post Desert Storm economic slump. As another Iraq war does seem to become increasingly unavoidable from his team’s hawkish perspective, the US administration realises that it could cost W the presidency in 2004 should the possible war’s timing be unfortunate. If things go “well” (again, from a hawkish perspective), it could be over this summer and economic consequences could be bearable. This is the scenario most strategic planners in financial institutions apparently believe to be the most probable.

However, Murphy’s law looms large over all armed operations and things could very well turn out differently. And there are enough military people in W’s administration to remember good old Murphy. That’s why I think this tax break shows the Bush administration is starting to believe their man could lose in 2004. The big question will be – to whom?

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