Business in the Piracy Age

The technological advances achieved in the past fifty years have led us from the numerous limitations of the typewriter to the seemingly boundless capabilities of the modern computer. Along the way, the computer has shrunk from warehouse-size to notebook-size. Computer software has evolved quickly as well, expanding in the types of programs as well as in the number of options available in each respective program. The average person can perform a wide range of tasks, such as writing papers in a word processing program and touching up family pictures in a graphics editing program. In short, computers have revolutionized the way people work and play.

Home users are not the only beneficiaries though; businesses have had an intricate part in perpetuating the breakthroughs in the hardware and software areas. Microsoft and Google, for example, are household names, having become dominant in their particular market. Different companies now offer niche software for particular industries. Businesses have innovated in creating new software, but they have also enjoyed the benefits as well. Imagine how much fun working on and passing around documents in an office was for workers thirty years ago, and that is just one example.

That being said, the digital age has its own issues. The ease with which people can share digital information in addition to a carefree disregard of copyright law has led to a booming software piracy subculture. Groups of people spread out all over the world publicize working serial numbers for software, create programs that circumvent protective measures intended to thwart piracy of a program, and offer full version downloads of whatever products they can obtain. It is remarkably easy to illegally download virtually any program. Some studies put the losses due to piracy at $53 billion.

The problems that piracy causes affect businesses and individual users. Obviously, if people do not pay for software that they use, businesses do not make money, which can lead to layoffs or other problems. As a result, businesses pass on the cost of piracy to customers in the prices and look for ways to make their program as difficult as possible to illegally use.

Commercial software typically must be “activated” online in order for the purchaser to use the program. The most (in)famous is probably Windows Product Activation, which is Microsoft’s activation scheme for all of its Windows operating systems starting with Windows XP. The user must input a 25-character serial number during the installation and then “activate” their copy of Windows, most easily by connecting to a Microsoft server which receives information about the installation. Companies implement these schemes in order to try to prevent people from violating the software’s license.

I think activation schemes are rather lame because, instead of preventing or significantly hindering piracy, they merely inconvenience and irritate paying customers. The same study that I linked to earlier lists the United States in the group of countries as having the lowest rate of software piracy. All the people pirating software in central and eastern Europe don’t have to activate the same programs because “warez” groups disable activation entirely or provide a work-around for it. Why should a paying customer be treated as if he or she were a criminal? Activation and other anti-piracy schemes essentially ask the honest consumer to provide validation that he or she is not a criminal.

In my view, the reality of software piracy means that businesses need to adapt to changing times and provide a better experience for the customer. Although I am skeptical of the claim by some people that most people will pay for software given a reasonable price, I do think that the high costs and the pointless, confusing attempt to split the market with multiple editions of the same program, such as the various flavors of Microsoft Office or Windows, tempts normally honest people to pirate software. The restrictive end user license agreements are probably a factor as well, but that’s a whole other topic.

I fully respect the right of companies to protect their hard work and products. People ought to respect copyright law and pay for proprietary software or go without it if don’t want to pay the retail price. However, I object to intrusive schemes that unreasonably seek to limit or control how I use software.

The Messy World of the Music Business

The music industry has been experiencing significant tension since the rise of file-sharing software in the late 1990s.  The most famous program, Napster, was perhaps the signature application that brought sharing music online into mainstream awareness, spreading through college dorms and eventually into the public.  Though Napster and similar software would have surely emerged regardless of prior events, the bad taste left in the mouth of consumers after the CD price-fixing allegations and subsequent federal litigation of five major music companies probably contributed to the willingness of normal people to download large quantities of digitized, copyrighted music without paying for any of it.

The music industry has taken a number of approaches to try to stop music piracy, which it claims has had substantial impact on the profits of the music companies and indirectly on the artists themselves.  First, trade groups, namely the Recording Industry Association of America (RIAA) have filed numerous lawsuits against file sharers, some of which have resulted in unbelievable damages.  Second, the music companies themselves have done just about everything to hang on to their twentieth century business model of exercising almost complete control over the distribution and price of music, and it is this stubbornness that I would like to examine.

Let me first preface the discussion with this:  I do not condone downloading copyrighted material illegally.  However, the music industry, until recently, has pretty much been completely clueless about how the digital age works and how it changes their business abilities.  Any person with a CD, computer, appropriate software, and an Internet connection can rip the CD into unprotected mp3s and upload it to anywhere in the world.  This means that someone else can not only get the music for free but also be able to listen to the songs at any time on any device compatible with the mp3 standard.  How did the media conglomerates respond?

The music companies decided that they would put one toe into the pool, so to speak, by offering music online, but the stores have had numerous problems.  First, in order to try to prevent people from distributing the songs to others, the companies introduced digital rights management (DRM) into all the songs.  Perhaps the best example of DRM can be seen with the music subscription services, such as the ones the new Napster and Rhapsody offers.  Basically, a consumer pays a flat fee each month to have access to a large library of songs, featuring popular artists from major record labels.  Typically, consumers can also download these songs to their computers or portable music players, but they can only listen to them for as long as their subscription lasts because the files are protected by a license and will expire if the subscription lapses, though the customer can renew the license and listen to the files once he or she extends the subscription to the music store.  Also, the customer cannot cannot convert the file to another file format.

From the perspective of a music executive, the subscription model laden with DRM is great because it provides a constant revenue stream and limits the choice and abilities of people to do anything with the music, but it is, at best, a wash for the consumer.  I don’t see anything particularly attractive about paying for music that a company can take away from me at a point down the road.  In reality, music subscriptions services merely give a consumer a license to listen to it for a predetermined amount of time; the person does not own the music.

Because of the proliferation of music sharing online, music companies are slowly coming to understand that people resent their greed.  DRM-free stores are becoming more commonplace, such as Amazon’s mp3 store.  iTunes went DRM-free earlier this year, though I feel sorry for anyone who purchased a lot of music from iTunes, considering that, if you want the non-restricted songs, you have to re-buy them for thirty cents per song or thirty percent per album.

The music industry is slowly adapting and offering choices that are more palatable to consumers, and it will be interesting to see if these offerings have any demonstrable effects on music piracy and profits.  The pro-piracy apologizers that seem to inject their rationalizations at every tech site and the industry itself will be watching to see what happens.

If you are interested in free and legal music, check out sites like Jamendo, which has a range of different styles of music.  You can listen to the albums streaming and download them if you like them.  All the music is published under Creative Commons licenses.  I have no affiliation with the site, other than I have enjoyed the music and downloaded albums from the site.

A Short Statement of Purpose & Comments Policy

This blog is a place for me to put out, for public consumption, my thoughts on various issues related to three areas of interest to me: technology, law, and business.  That’s basically it.  I did say it would be a short statement of purpose after all.  The next post will start the blog for real.

I believe in the right to free speech contained in the First Amendment, but I also believe that the First Amendment right to free speech does not include the right to be heard.  Accordingly, the comments section of my blog will not be a free-for-all for all the angry people on the Internet, looking to simply cause problems.  I will try to be fair in my moderation, meaning that I will not delete comments just because I disagree with a person’s view.  That being said, I will not tolerate comments that in any way promote or sympathize with racism, sexism, threatening language toward anyone, sexual innuendo, homophobia, or any other such behavior.  Basically, treat others with respect and disagree with others with grace.