New Media as Institutions: Ownership & Business

ModelsStephanie Gokhman

COMM 2450: Communication & TechnologyGuest Lecture 6.19.12

Today's Reading

Benkler, Yochai. 2006. “Some Basic Economics of Information Production and Innovation,” Chapter 2 of The Wealth of Networks: How Social Production Transforms Markets and Freedom. http://yupnet.org/benkler/archives/10

Summary of BenklerCommercial vs Volunteer- Commercial makes cars, steel and wheat- Volunteering makes science, software and public radio

Challenges the exclusive rights culture (strict copyright law) to make an argument for the effciencies of non-exclusive strategies for dealing with information and intellectual property.

Outcome: Copyright economic strategies & Commons-Based Peer Production: the value of the cathedral & bazaar, open source paradigm, leveraging volunteer contributors and the power of the many to overcome ineffciencies in the information economy

Rival vs Nonrival Goods

Nonrival (information): when its consumption by one person does not make it any less available for consumption by another. Once such a good is produced, no more social resources need be invested in creating more of it to satisfy the next consumer.

Rival (apples): when its consumption by one person makes it unavailable to another. Once such a good is produced, more resources need to be invested in creating more of it to satisfy the next consumer, which often also impact other markets.

Public vs PrivatePublic Goods: nonrival goods like scientifc fact and

literature whose marginal cost is $0. A candidate for nonmarket production.

Pure Private Good, or Economic Good: rival goods, in which market production turns a proft. This can be through turning a public good into a publication, which involves a marginal cost and generates revenue.

Information as an Economy “on the shoulders of giants” effect (Isaac Newton) - Information builds from other information - Information is both input and output of its own

production process (somewhat recursive)

Given this, then strengthening intellectual property rights INCREASES the prices for those who invest in producing information today for yesterday's information.

- Danger of too little consumption of information today, but also too little production of new information for tomorrow

The Ineffciencies of Modern Copyright Law

“From the perspective of a society’s overall welfare, the most effcient thing would be for those who possess information to give it away for free—or rather, for the cost of communicating it and no more. On any given day, enforcing copyright law leads to ineffcient underutilization of copyrighted information.”

- Benkler, Paragraph 3

MORE (in Benkler's words “effcient”) access to information promotes more creativity and innovation to benefit society, outweighing the exclusive rights that lead to proft over information's marginal cost ($0).

Intellectual Property & EmpiricismSupreme Court case of Eldred v. Ashcroft: life of the author + 50 years → life of the author + 75 years or from 75 years to 95 years for copyrights owned by corporations

Josh Lerner: investment in R&D decreases slightly when patent law is strengthened – consistent with “on the shoulders of giants” effect – increases costs that current innovators have to pay on existing

knowledge more than it increases their ability to appropriate the value of their own contributions

For information, this strengthening of law is theoretically ambiguous and lacks empirical basis: what do we gain (if anything) by treating information like property?

Cost Minimization & Beneft MaximizationCost minimization: obtaining as many of the information inputs

as possible at their marginal cost of zero (converse: buying licenses to inputs): materials from the public domain, materials the producer itself owns, or by sharing/bartering for information inputs owned by others in exchange for one’s own information inputs.

Benefts: reliance on asserting one’s exclusive rights, or by following a non-exclusive strategy.

What are these strategies?

The Romantic MaximizerExclusive-rights-based strategy where the information producer as

a single author or inventor laboring creatively—hence romantic—but in expectation of royalties, rather than immortality,

beauty, or truth.

Example: An author selling rights to his book.

MickeyExclusive-rights based industries where a larger frm that already

owns an inventory of exclusive rights, some through in-house development, some by buying from Romantic Maximizers.

Reworks their own material.

Ex: If Disney bought Winnie the Pooh.

RCAExclusive-rights-based strategy where there is bartering among

the owners of inventories.

Example: the patent pools, cross-licensing, and market-sharing agreements of the radio manufacturing industry

Scholarly LawyersNon-dependent on exclusive rights strategy where sometimes

using an information good that one has produced makes its users seek out a relationship with the author and the author

charges for this relationship.

Example: Doctors and lawyers who publish and become well-known.

Software publishingStrategy relies on sales based on copyright, accounts for a little

more than one-third of the industry’s revenues.

Dyson & Perry Barlow (1990s) argued for more or less free access to copies of recordings distributed online, which would

lead to greater attendance at live gigs. Revenue from performances, rather than recording, would pay artists.

Know-HowNon-exclusivity strategy where innovation is necessary to stay

state-of-the-art, and barter information for access, and/or exploit the information generated and informally shared by all

participants in “learning networks”.

Example: IBM and Linuxrelated services

Joe EinsteinNon-exclusivity strategy of universities and other research institutes; government research labs that publicize their work, or government information agencies like the Census Bureau; individuals, like academics; authors and artists who play to

“immortality” rather than seek to maximize the revenue from their creation.

Example: Oratorio Society of New York playing Carnegie Hall annually

Los AlamosNon-exclusivity strategy where there is reliance on internal

inventories by some nonmarket organizations.

Example: secret government labs (public funding, private info)

Music & Remix CultureFrom hired musicians playing passed down/reappropriated folk songs

(revenue in instruments and performance halls) – Scholarly Lawyer and Joe Einstein → the phonograph (revenue in recording, copying, and distributing,

advertising/preference formation, ) – Romantic Maximizer and Mickey → computers (low production and access costs, reemergence of

decentralized, relation-based markets for professional performance artist and consumer) – Teacher & Viking Ships example

Similar paradigms: the telegraph, radio, flm, etc.

For more info see Lessig “Remix: Making Art and Commerce Thrive in the Hybrid Economy”

Social Capital & Economic Capital

5-7 minutes.

Break into groups of 2.

What are some ways in which the modern music industry relies on social relations and social media? For every artifact you name, determine whether it is rival or

nonrival.

“Where does innovation and information production come from, then, if it does not come as much from intellectual-property-based market actors, as many

generally believe?”

1. nonmarket sources—both state and non-state (ex: science funded by NIH, NSF, DOD, etc)

2. market actors whose business models do not depend on the regulatory framework of intellectual property (ex: daily newspapers' low cost for purchase & high advertising revenues)

Motivating Non-Proprietary- the majority of businesses in most sectors do not rely on

intellectual property as a primary mechanism for appropriating the benefts of their research and development investments

- mainstream economists believing that there is a substantial role for government funding

& that nonproft research can be more effcient than for-proft research

& that nonproprietary production can play an important role in our information production system

Amateur

Professional

Break Out!

Grab a partner

Take 5 minutes

Why would Benkler argue that it’s possible for the amateur version to be better than the

professional?

Last comments? Questions?

Contact: sbg94@cornell.edu