The Price of Everything (23 page)

On the other hand, inventors of drugs would not survive in business without patents. And without the inventors the drugs would not come into being. Granting patents for a limited period seems a reasonable trade-off. The time must be long enough to allow those who invented the drug to recoup their costs and make a profit, but no longer—to ensure that competition with generics will bring its price down and make it broadly accessible across the population.

In the United States, the period of patent protection starts ticking the moment a pharmaceutical company requests it. On average, new drugs have about twelve years of protection left after they finally arrive on pharmacy shelves. Once generics enter the fray prices plunge. They capture about 60 percent of the market by volume within nine years. In twelve years they take 80 percent. By then, the price of drugs has fallen by half.

Patents have been drivers of innovation. They have encouraged inventors to create and have diffused their creations—encouraging owners to license their intellectual property. For instance, a survey of 133 multinationals by a British consulting firm found that 102 had licensed technology from others and 82 had licensed technology to others. The market for technological licenses is worth about $25 billion in North America alone, according to one study. In 2000 approximately 20 percent of IBM’s profit derived from the sale of licenses. And in the United States, new firms and investment groups have appeared in recent years to buy, sell, broker, license, and auction patents, drawing venture capital into the field.

This transfer of ideas would be unlikely to happen if information were free. Chances are nobody would have bothered to think it up. Or inventors would keep their inventions under lock and key until they could figure out how to profit from them.

Artists and pharmaceutical companies have a lot in common. However much we like to think of pop stars and other artists as interested only in the deeper meaning of their art, they like to make money too. As Paul McCartney once said, “John and I literally used to sit down and say, ‘Now, let’s write a swimming pool.’ ” If they can’t earn the pool through what they create, most will stop creating.

Yet the ownership of raw ideas—a poem or a melody—was always a more controversial concept than ownership of things made of ideas, like drugs. Books were protected in seventeenth-century Britain through a monopoly over printing granted to the Stationers’ Company, which kept a registry of all titles in a vellum-bound volume in London’s Stationers’ Hall.

But the first copyright law was only passed by the English Parliament in 1709, after the Stationers’ Company lost its 140-year monopoly in 1694, unleashing cutthroat competition in the printing business. After independence, the United States Congress followed the English lead, passing a copyright act in 1790 that granted publishers protection for fourteen years, with the chance of a fourteen-year extension. It had one novel twist, however. It covered only American authors—freeing American printers to copy foreigners’ work at will. Foreign information was free; domestic information was not.

American printers rushed to snatch up and republish English bestsellers, sending their prices tumbling. According to one report, in 1843 Charles Dickens’s
A Christmas Carol
, which in England cost the equivalent of $2.50, cost merely six cents in the United States. Americans’ refusal to protect foreign works lasted until 1891, by which time a domestic literary scene had emerged and American writers had started to clamor for protection from the cheap imports. Even as Congress extended the protection to foreign works, it threw a bone to domestic printers by limiting copyright only to works from overseas that were typeset in the United States.

This provision remained in place in various forms until 1986, leading to vociferous complaints of American piracy, or “bookaneering,” as some English writers called it. The famed British composer Sir Arthur Sullivan even paid American musicians to sign their names to some of his scores, like that of
The Mikado
of 1885, and transfer the rights back to him. That way he could gain copyright protection otherwise unavailable to a foreigner.

“The present American copyright regulations tend to keep all English and Continental authors in a state of irritation with something American,” wrote Ezra Pound in 1918. “There is a continuous and needless bother about the prevention of literary piracy, a need for agents, and agents’ vigilance, and the whole matter produces annoyance, and ultimately tends to fester public opinion.”

Many of the arguments articulated by the current crop of Internet rebels were first made many years ago by the pirates of generations past. In the eighteenth century, members of Congress claimed that withholding copyright protection for popular imported works would serve a virtuous purpose: providing cheap books to an increasingly literate population. Complaints by English writers were, by comparison, minor irritants. Today’s warriors of the online revolution argue that file sharing enables an unprecedented access to music, a self-evident good. They hold the music labels and the Hollywood studios in the same sort of disregard as Congress held eighteenth-century British writers.

 

 

RADIOHEAD’S EXPERIMENT SUPPORTS
an additional point with which contemporary pirates want to clinch the argument. Giving away intellectual property for free would allow its creators to make more money than if they were to keep it under locks. If in the past artists toured to promote their latest album, today the latest album would promote concert tours. A band that gave away songs for free online would allow fans to sample its offerings and persuade them to buy more of its music, T-shirts, key rings, and more.

Some artists have been converted to the creed. Paulo Coelho, the bestselling author of
The Alchemist
, claims file sharing boosted sales of his books in Russia by several orders of magnitude. He started a Web site, dubbed “Pirate Coelho,” where he put copies of his work to download for free. “A person who doesn’t share is not only selfish but bitter and alone,” he wrote.

Still, the economic case mustered by the supporters of online theft is slim. Indeed, the evidence so far is fairly unequivocal: offering stuff for free means not making money from it. One analysis of undergraduate students at the University of Pennsylvania concluded that downloading free music reduced students’ annual expenditures on hit albums from $126 to $100, on average. In 2002, other researchers found that peer-to-peer music sharing cut music sales in Europe by 7.8 percent, reducing the chance that somebody would buy music by 30 percent. Yet others concluded that from 1998 to 2002 downloading could have reduced worldwide music sales by a fifth.

The experience of
In Rainbows
is held as a prime example of what art can do once it is free from the poisonous embrace of copyright, to be shared around the world. Yet these tactics only seem to work for a select group of bands that are already famous.

In 2003, when the RIAA started taking people to court for downloading as little as a handful of songs from a peer-to-peer site, they offered researchers a window into the impact of piracy. Tracking the impact of the decision on music sales, a group of researchers uncovered an interesting pattern of behavior. As expected, file sharing plummeted in the months following the announcement of the labels’ legal campaign, as teenagers freaked that they could wind up in jail.

The interesting finding, however, was that while curtailing piracy had no discernible impact on the sales of top-ranked artists, it provided a significant boost to lesser acts. For albums that debuted on the
Billboard
charts below the twentieth position, the labels’ legal threat boosted their survival time on the charts from 2.9 weeks to 4.7 weeks. The sales suggested that piracy was particularly harmful to the sales of lesser artists.

From 1996 to 2003, when free file sharing started to decimate music sales, the price of tickets to top rock-and-roll concerts jumped at about five times the rate of inflation—substantially faster than tickets to the theater or sports events. But the evidence suggests touring is not the solution for smaller bands.

The “free” strategy works for Trent Reznor, of the American postindustrial rock project Nine Inch Nails. When he launched
Ghosts I-IV
in March of 2008, Reznor offered a series of formats, from a $5 digital download to a $300 ultra-deluxe package bundled up with a DVD and other merchandise. He also offered
Ghost I,
the first part of the album, for free online—putting it up on The Pirate Bay and other file-sharing services. And he licensed the album under a so-called Creative Commons license, an alternative to regular copyright offered by a nonprofit organization in San Francisco that allows creators to reserve some property rights but waive others, granting free access to many users on a noncommercial basis. In the first week, Nine Inch Nails made $1.6 million. And
Ghosts I-IV
was the bestselling MP3 album sold on Amazon in 2008.

Reznor’s experience, however, also underscores the limits of the strategy for those below the first echelon of pop stardom. On November 1 of 2007, three weeks after the noisy release of
In Rainbows
, Reznor’s friend Saul Williams tried a similar stunt. He released his album
The Inevitable Rise and Liberation of Niggy Tardust!
, which Reznor produced and helped bankroll, offering listeners a choice between a free version and a higher-quality one for five dollars. Over the next two months, 154,449 people downloaded the album. But only 28,322, fewer than one in five, paid. A true believer in the transformative power of the Internet, Reznor was dismayed that most of Williams’s fans interpreted free as meaning they didn’t have to pay anything:

“Saul and I went at this thing with the right intentions,” Reznor said later. “We wanted to put out the music that we believe in. We want to do it as unencumbered and as un-revenue-ad-generated and un-corporate-affiliated as possible. We wanted it without a string attached, without the hassle, without the bait and switch, or the ‘Now you can buy the s**** version if you buy . . .’ No, no, we said: ‘Here it is. At the same time, it’d be nice if we can cover the costs and perhaps make a living doing it.’” For Williams, the “pay what you wish” model allowed 126,177 people—more than four out of five of those who downloaded his music—to pay nothing at all. It is very difficult to make a living against odds like that.

In 1979, the Canadian government asked Stan Liebowitz, an American economist who studied copyright, to look into the impact that photocopying and retransmitting TV broadcasts on cable channels would have on publishers and broadcasters. Liebowitz observed that publishers were able to increase the price of the works they published because users valued the fact that they could make copies. To the chagrin of the networks and publishers, he concluded that copying wouldn’t necessarily hurt them. “I appear to be the first economist to suggest that illicit copying might actually benefit copyright owners,” Liebowitz wrote, years later. “But in those days there was not an army of copyright critics to embrace my work and make me a hero, as there is now.”

Yet by now he’s changed his mind. Three decades since his seminal photocopying study, Stan Liebowitz too doubts there is money to be made from giving music away for free. In a recent study he concluded that the entire decline in the sales of albums in a sample of ninety-nine American cities between 1998 and 2003 was due to rampant online file sharing. Interestingly, sales of jazz and classical music increased—perhaps a testament to the average age of their typical listeners. But sales of hard rock, rap, and R&B fell by double digits.

It’s a little bit like stealing sneakers, he observed. It is not impossible that a street gang that steals a shipment of sneakers might ultimately boost sales of the footwear if it happens to be a trendsetting paragon of coolness in the neighborhood. A kid who shoplifts steak might mean more business for the butcher over the long term if the theft induces in the thief a lifelong taste for prime beef. Still, Liebowitz pointed out, “I have never seen these types of argument put forward in a serious way to suggest that society might be better off if the prohibition on theft were overturned.”