Archive for March 2011
Back in 1999, a start-up company called Napster introduced the world to an unprecedented method of instantly delivering music to consumers via the internet. The peer-to-peer (“P2P”) delivery mechanism Napster innovated inspired a “new attitude” in consumers, who began demanding the availability of more options from the legacy record companies. Instead of adapting this path-breaking new technology to its own model, however, the record industry’s response was simply to start filing lawsuits against Napster and its progeny in order to muscle them out of the picture. Yet, once they succeeded, the industry never made any earnest attempts of their own to deliver what consumers wanted and had already realized was possible.
A decade after the record industry’s reactionary and ill-fated response to P2P, traditional book publishers are now faced with a technological revolution in its own industry in the form of digital books, or “ebooks,” delivered instantly and inexpensively to ereaders. Although it is still early, it appears the publishers have repeated both of the record industry’s two major tactical failures. First, the publishers, like the record industry before them, failed to initiate the revolution on their own. Instead, the path-breaking innovation came from a challenger when online bookseller Amazon developed the first widely used ereader, the Kindle, along with its ebook delivery service through its online bookstore. Second, the publishers, again imitating the record industry, appear to be doing all they can to resist rather than embrace the new digital model.
If the first failure can be forgiven, the latter is more difficult to account for. When P2P came on the scene, the record industry regarded it as more of a nemesis than an opportunity. “The truth is the music industry has no interest in providing its music digitally . . . . the music industry wants to destroy Napster . . . not work with them.” The principal threat Napster posed to the music industry was not the fact that it competed for its customers, but rather that it challenged the industry’s entrenched business model. While the industry succeeded in leasing a few more years on its model through court victories, it nonetheless failed to transition—even though, ironically, the Napster court relied on the industry’s expert’s testimony to conclude that the “‘record company plaintiffs have already expended considerable funds and efforts to commence Internet sales and licensing for digital downloads,’” and thus Napster was precluded from entering this market.
In fact, record companies benefit from the inefficiencies implicit in legacy delivery mechanisms. The large record companies own the infrastructure for the manufacture, packaging, delivery and marketing of physical media, the costs of which are passed along to the consumer at a premium. New technologies that purport to eliminate several of these points of process, thus lowering the cost to the consumer, inherently deprive the record company of potential profit.
Of course, the industry’s foot-dragging eventually backfired. Perhaps most importantly, it cost them the opportunity to develop and define the way electronic music delivery would work. Instead, computer companies like Apple and its iTunes service, and Microsoft and its Zune service, have rushed to fill the void. These challengers now have a substantial say in how digital music will be packaged and delivered—decisions over which the incumbent record companies might have enjoyed greater hegemony had they responded differently to the digital revolution.
For the incumbent record companies, a key problem with the iTunes model of digital distribution is that it allows consumers to purchase individual songs. As a result, artists, even those getting heavy airtime, are having trouble selling out venues. As a further result, there is a shrinking number of “popular” artists, traditionally understood. The record industry is suffering not just because it failed to transition to digital, but because it failed to account for the other systemic impacts this transition would cause. Total music sales today, including digital, continue to decline from an all-time high in the late ‘90s. This perhaps explains why the average age of today’s touring musician is 46, and climbing.
Judging from the recent criticism of several authors and commentators, book publishers have a similar motive to squelch or slow the advance of ebooks in order to retain their hegemony in the paper model. Novelists Barry Eisler and Joe Konrath, each boasting respectable numbers in both paper and digital sales, discuss how publishers systematically hobble their digital sales for the purpose of preserving paper sales. One way publishers do this is to insist on an unsustainable 75%/25% publishing split in favor of the publisher on ebook sales. After deducting Amazon’s 30% take and agents’ 15%, authors are left with 17.5%—a curiously small fraction of the sale considering it came with virtually none of the costs typically associated with paper sales. Similarly, publishers typically price ebooks well above the $.99 to $4.99 price points where maximum revenues are achieved, and hold back digital releases until the paper release is ready. All of these practices are designed, Eisler and Konrath suspect, to retard the growth of digital and thus protect the publishers’ paper sales.
As Eisler explains, “it’s extremely hard for an industry to start cannibalizing current profits for future gains. So the music companies, for example, failed to create an online digital store, instead fighting digital with lawsuits, until Apple—a computer company!—became the world’s biggest music retailer.” Invoking Upton Sinclair, Konrath summarizes: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.”
Despite the best efforts of the entrenched legacy interests, however, artists continue to find ways to employ the new technology to reach growing numbers of consumers. The Ninth Circuit Court of Appeals observed that the alt-rock band Wilco, after being dropped from recording giant Warner/Reprise as having “no commercial potential,” purchased their unreleased album from Warner and proceeded to release it on the internet. Despite the media giant’s bleak predictions, the album was a hit, and Wilco’s record was subsequently picked up by an independent label and released on the traditional market.
On the book publishing front, more and more authors are finding the self-publication alternative not only viable, but superior. Eisler shocked industry insiders and commentators when he recently turned down a $500,000 deal with St. Martin’s Press in favor of going it alone. Eisler breaks down the numbers supporting his decision:
But to understand what the number really represents, you have to break it down. Start by taking out your agent’s commission: your $500,000 is now $425,000. Then divide that $425,000 over the anticipated life of the contract, which is three years (execution, first hardback publication, second hardback publication, second paperback publication). That’s about $142,000 a year. This is a more realistic way of looking at that $500,000.
But there’s more. Some people have mistakenly argued that, for my move to make financial sense, I’ll have to earn $142,000 a year for three years. But this is one time when you don’t want to be comparing apples to apples. Because the question isn’t whether I can make $425,000 in three years in self-publishing; the question is what happens regardless of when I hit that number. What happens whenever I hit that point is that I’ll have “beaten” the contract, and then I’ll go on beating it for the rest of my life. If I don’t earn out the legacy contract, the only money I’ll ever see from it is $142,000 per year for three years. Even if I do earn out, I’ll only see 14.9% of each digital sale thereafter. But once I beat the contract in digital, even if it takes longer than three years, I go on earning 70% of each digital sale forever thereafter. And, as my friend Joe Konrath likes to point out, forever is a long time.
. . . . So if I’m right about all this, and I’m pretty sure I am, I should be able to beat the contract about halfway through the fourth year. And again, all of that ignores the continued growth of digital, the way low-priced digital books reinforce sales of other such books, etc.
This model not only works for established authors like Eisler, but for many unknowns writing novels and short stories in their spare time. Among those is the no-longer-unknown Amanda Hocking, whose 9 self-published books, targeted at the young adult audience in the vein of the Twilight series, have generated more than 100,000 digital sales each month. Perhaps trying out a new strategy following its inability to pen a deal with Eisler, St. Martin’s Press recently struck a four-book deal with Hocking. St. Martin’s declined to disclose the deal points, though Hocking reportedly will receive a seven figure advance.
Nonetheless, Eisler and Konrath maintain that, by and large, it simply “isn’t a good idea for most authors to sign a legacy deal anymore.” Other authors are also convinced that “by 2012 everything we have thought about traditional publishing will be history.”
Eisler is probably correct that industries cannot be expected to “cannibalize” present profits for future ones, and thus, path-breaking innovations like P2P and digital books can only come from challengers to industry incumbents. These innovations represent more than a mere modification to the business model or an addition to an existing menu of consumer options: Digital delivery of music and books have changed, and continue to change, the very nature of the content being produced, having removed many of the economic barriers to entry, and many of the “quality control” functions served by legacy content providers. In the examples of the record and book publishing industries, that is, the value added by technology is the tail wagging the dog.
 Napster, 114 F. Supp. 2d. at 910. As another Ninth Circuit court acknowledged, the peer-to-peer technology that Napster popularized “significantly reduc[es] the distribution costs of public domain and permissively shared art and speech, as well as reducing the centralized control of that distribution.” MGM Studios, Inc. v. Grokster Ltd., 380 F.3d 1154, 1164 (2004).
 Music’s Brighter Future, The Economist, Oct. 28, 2004, available at
http://www.economist.com/displaystory.cfm?story_id=3329169 (“Historically, the majors have controlled physical distribution of CDs.”).
 Jason Calcanis, LETTERS: Free Napster (or why Judge Patel has started the revolution, not ended it), indieWIRE: Biz, available at http://www.indiewire.com/biz/biz_000801_napster.html.
 For example, the court decision in the MGM Studios, Inc. v. Grokster, Ltd. lawsuit scared off LimeWire, other another peer-to-peer music delivery service:
Fearing lawsuits similar to MGM v. Grokster, Mark Gorton, the chief executive officer of the firm that produces LimeWire, has said that he plans to stop distributing his file sharing program. He explained this by saying
“Some people are saying that as long as I don’t actively induce infringement, I’m O.K. I don’t think it will work out that way…[the Court] has handed a tool to judges that they can declare inducement whenever they want to.”
See Wikipedia, MGM Studios, Inc. v. Grokster, Ltd.,, available at http://en.wikipedia.org/wiki/MGM_Studios,_Inc._v._Grokster,_Ltd.
 A&M Records v. Napster, 239 F.3d 1004, 1017 (9th Cir. 2001); A&M Records v. Napster, 114 F. Supp. 2d 896, 908 (N.D. Cal. 2000) (“The record company plaintiffs have invested substantial time, effort, and funds in actual or planned entry into the digital downloading market.”).
 See Music’s Brighter Future, The Economist, Oct. 28, 2004, available at
http://www.economist.com/displaystory.cfm?story_id=3329169 (“Historically, the majors have controlled physical distribution of CDs.”). It is also suggested that other strangle-holds on the marketplace (such as bribing radio stations) that contribute to the majors’ domination will collapse on the Internet. Id.
 Jay Yarow, Business Insider (Feb. 16, 2011), at http://www.businessinsider.com/chart-of-the-day-music-industry-sales-2011-2.
 Paul Resnikoff, Digital Music News (Nov. 29, 2010), at http://www.digitalmusicnews.com/stories/112910averageage.
 Barry Eisler, Ebooks and Self-Publishing: A Conversation Between Authors Barry Eisler and Joe Konrath (Mar. 19, 2011), at http://barryeisler.blogspot.com/2011/03/ebooks-and-self-publishing-conversation.html.
 MGM Studios v. Grokster, 380 F.3d 1154, 1161 (9th Cir. 2004).
 Wilco’s case study indicates the flaw in Napster’s reasoning: major record labels are not interested in markets that may be attainable through the internet, when they are operating quite comfortably under their own model. Wilco illustrated that, while the internet may not guarantee as much profit as traditional content delivery, it may be an effective alternative for challengers.
 Jason Pinter, Why I’m Self-Publishing (Mar. 24, 2011), at http://www.thedailybeast.com/blogs-and-stories/2011-03-24/barry-eisler-explains-self-publishing-decision.
 Eli James, The Very Rich Indie Writer (Feb. 27, 2011), at http://www.novelr.com/2011/02/27/rich-indie-writer.
 Tara Bannow, Huffington Post, Amanda Hocking Signs Four-Book Deal with St. Martin’s Press (Mar. 24, 2011), at http://www.huffingtonpost.com/2011/03/24/amanda-hocking_n_840169.html.
 Terrill Lee Lankford, Maybe the Mayans Were Right…But They Were Talking About the Publishing Industry (Feb. 4, 2011), at http://quixoticprod.blogspot.com/2011/02/maybe-mayans-were-rightbut-they-were.html.
Consider the following only slightly exaggerated version of an argument that occurs in a lot of political philosophy
1. Institution X is unjust or bad.
2. Therefore, X should be abolished or reformed.
What’s wrong with this? Well, two things, actually, which I describe below.
First, identifying some feature(s) of X as bad or unjust doesn’t give any reason, or at least no particularly strong reason, to believe that an alternative institution will be better or less unjust. A joke illustrates the problem. A Roman Emperor asked to hear the best singers in his kingdom. The finalists were narrowed down to two. The emperor heard the first one, was unimpressed, and promptly announced that the award goes to the other finalist, because the next singer must be better than the first one. Of course, that’s wrong: the second one could be no better or worse. The emperor needs to hear both singers to make a proper judgment.
There’s something about this argument that doesn’t sit well, and I think it’s the implied assumption that we need Institution X. If there’s no real need for X, then if it’s unjust or bad, this ends the inquiry: Get rid of X. We ought never take for granted that we need more government machinery.
(This post originally appeared at AtheistConnect.)
In the comments to my previous post arguing that atheism cannot account for morality, Nate asks: “[w]hy must there be a transcendental reality” to account for morality? It’s a fair question, though not a novel one. Philosophical skepticism is at the core of epistemological inquiry concerning the nature and extent of human knowledge. In his Meditations, Rene Descartes asked this question not just about morality, but about the entire scope of what we purport to know. In his famous thought experiment, Descartes plunged himself into universal doubt, acknowledging the possibility that our minds were being manipulated by an “evil genius” to falsely believe in the reality of an external world around us. The first step to resolve that doubt was to realize that the very exercise itself confirmed the existence of a being engaged in the act of doubting—an argument Descartes articulated as cogito ergo sum. Having authenticated his own existence as a thinking being, Descartes path from doubt, very crudely summarized, proceeded by presenting an a priori argument for the existence of God, and then arguing that because God is not a deceiver, those things we “clearly and distinctly perceive” must be true. Other than the cogito, many philosophers disagree with Descartes’ arguments. But the problem for us today is the same as it was for Descartes as he sat in his study mired in universal doubt: Since empirical reality is subject to doubt, then in the absence of a touchstone that transcends that reality, how can we lay claim to any knowledge about the world? If we reject Descartes’ path from universal doubt, perhaps we have to be satisfied with the possibility that our brains might actually be in a vat somewhere being manipulated by Descartes’ evil genius, or in some other equivalent of the “matrix.” But let’s move on.
Another significant blow to empiricist epistemology was dealt by atheist philosopher David Hume. Hume, fond of explaining philosophical principles by making reference to billiard balls, observed that while he consistently observed that certain behavior occurred when one billiard ball struck another, he never observed anything that could properly be described as “causation.” Causation, Hume argued, is an abstract relationship that has no extension in empirical reality. All that we can perceive, according to Hume, is a “constant conjunction” between certain events and certain effects; constant conjunction, however, is not the same thing as causation. For example, the moon comes out when the sun goes down; yet, the moon does not come out because the sun goes down. Thus, while he could not help that his mind believed there exists causal relationships between the billiard balls, and while his mind further drew predictions about the expected effects of those purported causal relationships, Hume acknowledged that he could not give a reasoned account of the relationship or his predictions. That is, because we cannot perceive causation, maintaining belief in causation in a purely empirical worldview is philosophically arbitrary.
Hume came to the same conclusion with respect to induction. We might gain information by studying information perceived in the world. However, once we purport to make claims about the future based on that information, we are no longer making purely empirical claims. Instead, we have inserted a transcendental premise into our argumentation, namely, that the future will resemble the past. Because we have no empirical data about the future, such claims are unjustified and arbitrary as a matter of empiricist philosophy.
Thus, Hume demonstrated that, with respect to fundamental tools of science—causation and induction—we have not escaped the basic Cartesian dilemma presented in a purely materialistic worldview: Without a touchstone that transcends experience that permits us to bridge the world of abstract ideas to the physical world, all our claims about the world are wholly arbitrary.
With that in mind, atheism’s problem of morality is easily demonstrated: In a purely empirical, materialistic worldview, there is no basis upon which we make claims that acts have moral value. In fact, the existence of “moral value” cannot be proven empirically in the first place. We do not have any empirical data about moral claims. Indeed, what might moral value smell like? How much does it weigh? Nate claims that “Human life should be precious just because it’s human life. There doesn’t have to be more reason than that.” This claim is the definition of chutzpah: atheists, such as those on AtheistConnect, belligerently rail against religion by alleging it offends human reason by making moral commandments by fiat. I disagree with that claim, of course, but Nate has here offended atheism’s raison d’être: he has asserted a moral commandment by fiat. Worse still, by his own fiat, it would appear.
For my part, I do believe human life is precious because I believe all life is created by God, and because I believe that, having been created in God’s image, I have a moral nature that reflects His values and instills in me a proper respect for human life. My moral worldview is held together by these sorts of transcendental claims about the very nature of humanity, and thus allows me to make intelligible claims about what sorts of obligations are universally imposed on all human beings. In a purely materialistic worldview, however, it is impossible to make intelligible claims about morality. In such a worldview, the only sorts of moral claims possible are “I” statements: “I believe slaying a child is wrong.” “I believe slavery is wrong.” “I believe genocide is wrong.” Like Hume’s beliefs about the relationships between billiard balls or predictions about the future, these statements are mere matters of unfounded opinion. In the absence of some claims about the transcendental nature of humanity, purporting to hold “moral” beliefs is philosophically arbitrary.
A shocking letter written by a Glendale, Arizona middle school teacher.
For a depressing read, check out Greg Mankiw’s 2026 State of the Union speech. And if you think we can shore up all our overspending-undertaxing problems by turning Sauron’s gaze on the billionaires at the tippy top of the income scale, consider that even if we hogtied and took every last penny from each of the 500 or so billionaires and almost-billionaires in the U.S., it would cover little more than a third of a single year’s spending.