Category: Economy

Something to study

Ok, something else in the mid of all that running crap.

First, the next morning we’ll meet Helsinki city’s IT chief. On the table is the idea that the city would support / fund a municipal wifi initiative. I’ve heard the guys here are not that supportive to the idea but we’ll see… I hope there will be at least some sort of study of wifi’s possibilities.

Second, I noticed that the local TV news finally found out that the EU is proposing that car registration taxes should be zero. As someone who has imported two cars with crazy 100-150% import taxes I really love the idea. Finnish tax policy has been in this regard unsound, based on the 1970s principles of local transport industry protection without taking into account neither the EU economic policy (free movement of goods & people) or environmental policy for that matter. Maybe I should try to publish some sort of critical primer for the Finnish “tax professionals” about the whole tragedy.

Freaking filesharing

During the flight back from Canada I read Freakonomics. Nothing freaky to literates. Anyhow, the book’s simple approach to deterrence somehow struck me. Accordingly, deterrence is a trade-off between three incentives: economic, moral and social. Start giving penalties (economic incentive) and people might think it is no longer unethical to commit unwanted behavior (moral incentive). The example in the book was the introduction of a $3 penalty for parents who picked up their child late from the kinderkarten. The result was more late pickings as the parents didn’t feel guilty anymore and the price of late picking was neglible.

Apply this to file sharing on the Internet. Statistics show that file sharing has been increasing the last five years save for the first half of 2004. In late 2003, the recording industry started to push through penalties to individuals and managed to get one of the most popular network at the time (FastTrack) practically down.

But that victory was short-lived. Users switched to more robust and secure networks. By attacking technically weak networks, the recording industry makes sure the sharing technology keeps on advancing and new technology gets adopted quickly. File-sharers unite!

The fact that there are now penalties hasn’t helped. The risk of getting penalized is next to nothing. Moreover, with an arrogant policy the recording industry has arguably lost moral ground. Why should I deter from sharing some widely-available Madonna or Rolling Stones hit with other users? I don’t think those artist will lose anything from sharing and besides, they seem to be both arrogant and too-rich. Sharing brings friends!

Thus, I’d argue that the social incentives encouraging sharing outweigh the moral and economic incentives to deter from sharing. The penalty-policy has perhaps added a marginal economic deterrent but, at the same time, it has weakened the moral deterrent and strengthened the social incentives. The outcome of this equation can be read from the statistics.

A solution to Internet music

Ok, let’s have a sensible solution to the Internet music distribution controversy. A sensible approach is not to want music to be free. A sensible approach is not to use DRM either. A sensible approach is to focus on the quality of the listening experience, wide availability of the material, and happy users & artists.

First, there are different kinds of music. At least the following can be separated: (1) new MTV/radio feed, (2) back catalogue in stores, (3) non-published but protected stuff (4) download-free music (copyright expired, creative commons etc). The last is not a problem, others are.

So let’s take (1) first: new feed. I turn on my MTV, it’s U2. Apple’s website, the same guys. I turn on my car stereo, it’s again the same U2 and Vertigo. Streaming on and on. I don’t feel quilty downloading the same stuff online. I don’t think I should pay for it. MTV, Apple and radio do already, millions of times. Singles, big hits. It’s the demo stuff. I think that what they put in the big feed should be consequently free to rip and distribute. By an implied license or whatever. The same as you publish a homepage; it’s implied that anyone can download the stuff and forward it (as a link) to friends.

Then (2), back catalogue, which I think is the main problem. I don’t think P2P is ok for that stuff. There won’t be a choice for artists if Kazaa, Grokster et al and any Torrent community would be “legal”. Consequently music would be free. 90% on the albums that are not frequently played on the radio are not producing anything unless sold in a bundle. I’d keep that possibility with the artists. However, I’d require that labels can’t mandate DRM, can’t mandate quality and can’t mandate format. It’d be allofmp3.com instead of iTunes. CD-quality with cd-price, mp3 192 kbs quality with 1/5th of the price or so. And no DRM whatsoever. Basically CD-model to Internet mode, mutatis mutandis.

Finally (3), bootlegs of favourites and any stuff from nonames. This is not a straightforward case. I’d like to see any bootleg of Jimi or Stones to be free out there for anyone to download. For the sake of culture. However, I’d keep artistic control definitely with the nonames. So this one boils down to a privacy analogy. If you are a public person, any yellow paper can write about you, take pics and publish them on cover. However, if you are a noname, there’d be a privacy violation.

When open source went dot-com

Just came back from Joi Ito’s talk in Helsinki. He talked about the future of music business largely based on a recent Wired article.

Don’t get me wrong. The talk was great and thought-provoking. I did enjoy it. I just happen to have second thoughts of most of the stuff he said. His talk was like a troll-post to me and I’ll post my second thoughts here as I’d post them to any troll. Keep this in my mind if you go on to read my harsh critique in what follows.

* * *

The main message as I got it was that the music business is going open source. You’ll have the commercial “head” which is shrinking and is doomed. You’ll also have the long “tail”, which has all the future talent, and the real creative force. Folk, karaoke, Garageband, the stuff you really want to do. CDs are history. Big labels who do physical distribution and search artists at the moment will suffer and need to fundamentally change their “business models”. Mass media made us believe they had a role but in reality what they produce us is just crap (in terms of quality). We won’t have new Michael Jacksons’ anytime soon…

And the business in this new world of music? Mr. Ito claimed “prosumers”, for the lack of a better word, at the tail’s end will pay to get more attention. So one idea is to make some platform stuff (obviously software) for them. What else? Niche groups around folk bands and artists will be the center of action – so you can for example sell T-shirts to your audience. Great! Moreover, if you release just some of your stuff free you might later get bought by the big Hollywood-guys!! This is getting better and better – still more ideas!? The real bomb: DVDs!! They won’t disappear, there is a lot of development potential in music DVDs.

What a mess of “ideas”. Let’s refute them quickly:

1. Platforms won’t be business to anyone. If it’s going to be popular, it’ll be open source and free for all. Read IT doesn’t matter.
2. T-shirts… remember dot-com?
3. Get attention to get bought by the big labels – what is exactly new in this? And doesn’t this go against the very idea of p2p, open source and amateur revolution?
4. DVDs… again, what’s new? Ironically, to refute his earlier arguments, mr. Ito went on to show enthusiastically a new Rolling Stones DVD (which has camera angles to exite the audience and make them not to connect this to the earlier bs about marginal-artist revolution and the death of CDs)

* * *

The main impression I’m starting to get is that all this open source, open content, free/open whatever Internet-related stuff is at the moment the worst kind of hype available. The problem is people are getting interested, they want gurus to speak and the cycle starts to feed more and more belief in us. Success story here, success story there. Somebody makes a business proposal and mass psychology takes care of the rest. Open is the answer! Freedom or death!

I don’t doubt that this hype reflects the cultural and social impact of the Internet. Obviously people will share more, and it is indeed possible to cooperate and get “creative” in some ways unthinkable a few years back. Richard Stallman is the real guru of creativity and freedom in this sense.

However, mr. Stallman has nothing to say about business. Guys like mr. Ito make that mistake. Further, they go on to generalize open source to open whatever without much reality checks. We should not believe that the open/free/power-to-the-people trend has any business impact in the first place. Money is conservative. Money doesn’t follow the free. Money loves control and hierarchies, it wants to be in a safe place.

I bet Gekko would said to freaks like mr. Ito something like this: “You’re walking around blind without a cane, pal. A fool and his money are lucky enough to get together in the first place.”

Wonders of the Chilean economy

I’m still wondering the chilean economy and society. I’ve learned that Chile’s main trading partners are Europe, United States, Japan and China, in that order. Big, strong, established, and very progressive (especially China) economies, no doubt. So what’s the problem? I am asking where is Argentina, Brazil and Mexico – the three biggest economies on the continent!?

Ok, Mexico comes rights after China. Maybe because they buy chilean wine, and chileans buy back mexican beer. Big deal. Besides, Mexico is in North America, thousands of kilometres away while Argentina is just across the border. Brazil is also close by. However, Chile isn’t even a part of Mercosur, a trade agreement where Argentina and Brazil trade together. My question is why. Where is the European Union of South America?

Someone who has worked here in European embassies for more than twenty years gave an interesting analysis: while the chilean economy may have changed, the people have not. They don’t think global in the sense US and Europe do. They don’t act united. They don’t develop technological skills that would be needed outside. Chile still continues to buy all relevant technological knowhow from international companies. They buy everything from cars to electronics and even foodstuff abroad. Far away abroad.

In the end, Chile just inreases consumption and may not produce anything interesting to world markets in the long term. What is more, the consumption is hazardous. Those with access to capital seem to admire american standards (SUVs, shopping mall culture) without any regard to natural preservation (heavy air pollution, litter etc). They don’t ask what they can do for their country. They ask what their country can do for them.

The flip side of the development aid bandwagon is that according to figures Chile is so developed it won’t get too much foreign aid funds anymore. The result is a country stuck in between a developing nation and a developed one. Not a very interesting place businesswise. You may sell your stuff or ideas here. But if you are not into wines and copper, I don’t know if you can buy anything out from here or start a new venture in here.

My rather pessimistic end conclusion is that this place won’t be the edge of the world in my lifetime. I hope this is just the angst of the first one and a half months in Santiago. I hope I’m wrong.