compulsory reading, intellectual property rights, music industry

They’ll fuck up the pricing for at least five years!

This article in the Economist – about virtual Christman shopping and AOL TimeWarner’s hopes to get their by creating a new e-commerce platform – prompts me to tell you three things:

Firstly, my spacebar justbroke for no obvious reason (but being sick of being hit several thousand times a day).

Secondly, AOLTW is a tad bit late to establish a general shopping platform. It will cost them a fortune to get the critical mass anytime soon which limits their ability to lower prices as the competitors can and do (and is important especially in these economically troublesome days). This leads me to the last� – only somewhat related point:

Thirdly, I wanted to let you know the one quote that will make you relax about everything digital-good-commerce-profitbility related for at least three years to come. It is from some now likely fired e-record-company executive who mentioned back in 1999 that Ecommerce companies (especially those companies trading digital goods) “… will fuck up the pricing for at least five years.” Very true. But they haven’t quite understood yet that negotiating tougher measures on Capitol Hill and its equivalents, coming up with yet more international regulation will not solve the fundamental problem of creating value for the customer. Scientifically put, you can find the argument in this article from ! 1988 –

Pethig, Rüdiger, Copyright and copying costs, Journal of Institutional and Theoretical Economics/Zeitschrift für die gesamte Staatswissenschaft, 144 (1988), 462-495

The same point has been made a little more eloquently by some Microsoft employees who last week published this paper. Here’s a useful quote:

Consider an MP3 file sold on a web site: this costs money, but the purchased object is as useful as a version acquired from the darknet. However, a securely DRM [aka Digital-Rights-Management -the system in your computer that is supposed to stop you from copying from a CD, for ecample] wrapped song is strictly less attractive: although the industry is striving for flexible licensing rules, customers will be restricted in their actions if the system is to provide meaningful security. This means that a vendor will probably make more money by selling unprotected objects than protected objects.

Interesting, isn’t it? Well, legality can increase utility for a customer. Virus-proof downloading can do the same. A whole series of other stuff can, too. There’s a lot of variables to be worked on.

But as long as the relevant people don’t understand that they need to make buying a download more valuable than getting it at the p2p-service of the day, as long as they don’t understand that hackers are negotiating the prices for the rest of the digital community, the will continue to fuck up their pricing.

That record company executive said five years backin 1999. Actually, I think he was an optimist.

But time will tell.