Turow vs Everyone

According to celebrated author, lawyer, and president of the Author's Guild Scott Turow, the legal and technological erosion of copyright endangers writers. (New York Times, April 7th, 2013) His enemy list is conspiratorial in length and breadth. It includes the Supreme Court, publishers, search engines, the Hathi trust, Google, academics, libraries, and Amazon. Nevertheless, Turow makes compelling arguments that deserve scrutiny.

The Supreme Court decision on re-importation. (Kirtsaeng v. John Wiley & Sons, Inc.)
This 6-3 decision merely reaffirmed the first sale doctrine. It is highly unlikely that this will significantly affect book prices in the US. If it does, any US losses will be offset by price increases in foreign markets. More importantly, the impact will be negligible because paper books will soon be a niche market in the US.

Publishers restrict royalties on e-books.
Publishers who manage the technology shift by making minor business adjustments, such as transferring costs to authors, libraries, and consumers, underestimate the nature of current changes. Traditional publishers built their business when disseminating information was difficult. Once they built their dissemination channels, making money was relatively easy. In our current world, building dissemination channels is easy and cheap. Making money is difficult. Authors may need new partners who built their business in the current environment; there are some in his list of enemies.

Search engines make money of referring users to pirate sites.
Turow has a legitimate moral argument. However, politicizing search engines by censoring search results is as wrong as it is ineffective. Pirate sites also spread through social networks. Cutting off pirate sites from advertizing networks, while effective, is difficult to achieve across international borders and requires unacceptable controls on information exchange. iTunes and its competitors have shown it is possible to compete with pirate sites by providing a convenient user interface, speed, reliability, quality, and protection against computer viruses.

The Hathi trust and Google scanned books without authorization.
Hathi and Google were careless. Authors and publishers were rigid. Experimentation gave way to litigation.

Some academics want to curtail copyright.
Scholarly publishers like Elsevier have profit margins that exceed 30%. Yet, Turow claims that “For many academics today, their own copyrights hold little financial value because scholarly publishing has grown so unprofitable.”

Academics' research is often funded in part by government, and it is always supported by universities. Universities have always been committed to research openness, and they use published research as means for assessment. This is why academics forego royalties when they publish research. The concept of research openness is changing, and many academics are lobbying for the idea that research should be freely available to all. The idea of Open Access was recently embraced by the White House. Open Access applies only to researchers funded by the government and/or employed by participating universities and research labs. It only covers research papers, not books. It does not apply to independent authors. Open Access does not curtail copyright.

Legal academics like Prof. Lawrence Lessig have argued for stricter limits on traditional copyright and alternative copyrights. Pressured by industry lobbyists, Congress has repeatedly increased the length of copyright. If this trend continues, recent works may never enter into the public domain. Legislation must balance authors' intellectual property rights and everyone's (including authors') freedom to produce derivative works, commentaries, parodies, etc.

Amazon patents a scheme to re-sell used e-books.
This patent is a misguided attempt to monetize the human frailty of carrying familiar concepts from old technology senselessly into the new. It is hardly the stuff that made this forward-looking company formidable.

Libraries expand paper lending into digital lending.
Turow demands more money from libraries for digital lending privileges. He is too modest; he should demand their whole budget.

When a paper-based library acquires a book, it permanently increases the value of its collection. This cumulative effect over many years created the world's great collections. When a community spends resources on a digital-lending library, it rents information from publishers and provides a fleeting service for only as long as the licenses last. When the license ends, the information disappears. There is no cumulative effect. That digital-lending library only adds overhead. It will never own or contribute new information. It is an empty shell.

Digital lending is popular with the public. It gives librarians the opportunity to transition gradually into digital space. It continues the libraries' billion-dollar money stream to publishers. Digital lending have a political constituency, but it does not stand up to rational scrutiny. Like Amazon's scheme to resell used e-books, digital-lending programs are desperate attempts to hang on to something that simulates the status quo.

Lending is the wrong paradigm for the digital age. Instead, libraries should use their budgets to accumulate quality open-access information. They should sponsor qualified authors to produce open-access works of interest to the communities they serve. This would give authors a choice. They could either produce their work commercially behind a pay wall, or they could produce library-funded open-access works.

Annealing the Information Market

When analyzing complex systems, applied mathematicians often turn to Monte Carlo simulations. The concept is straightforward. Change the state of the system by making a random move. If the new state is an improvement, make a new random move in a direction suggested by extrapolation. Otherwise, make a random move in a different direction. Repeat until a certain variable is optimized.

A commodity market is a real-life concurrent Monte Carlo system. Market participants make sequences of moves. Each new move is random, though it incorporates experience gained from previous moves. The resulting system is a remarkably effective mechanism to produce commodities at the lowest possible cost while adjusting to changing market conditions. Adam Smith called it the invisible hand of the free market.

In severely disrupted markets, the invisible hand may take an unacceptably long time, because Monte Carlo systems may remain stuck in local minima. We may understand this point by visualizing a mountain range with many peaks and valleys. An observer inside one particular valley thinks the lowest point is somewhere on that valley’s floor. He is unaware of other valleys at lower altitudes. To see these, he must climb to the rim of the valley, far away from the observed local minimum. This takes a very long time with small random steps that are biased in favor of going towards the observed local minimum.

For this reason, Monte Carlo simulations use strategies that incorporate large random moves. One such strategy, Simulated Annealing, is inspired by a metallurgical technique that improves the crystallographic structure of metals. During the annealing process, the metal is heated and cooled in a controlled fashion. The heat provides energy to change large-scale crystal structures in the metal. As the metal cools, restructuring occurs only at gradually smaller scales. In Simulated Annealing, the simulation is run “hot” when large random moves are used to optimize the system at coarse granularity. When sufficiently near a global minimum, the system is “cooled“, and smaller moves are used for precision at fine granularity. Note that, from a Monte Carlo perspective, large moves are just as random as small moves. Each individual move may succeed or fail. What matters is the strategy that guides the sequence of moves.

When major market disruptions occur, resistance to change breaks down and large moves become possible. (The market to runs “hot” in the Simulated Annealing sense.) Sometimes, government leaders or tycoons of industry initiate large moves, because they believe, right or wrong, that they can take the market to a new global minimum. Politicians enact new laws, or they orchestrate bailouts. Tycoons make large bets that are risky by conventional measures. Sometimes, unforeseen circumstances force markets into making large moves.

The music industry experienced such an event in late 1999, when Napster, the illegal music-sharing site, suddenly became popular. Eventually, this disruption enabled then-revolutionary business models like iTunes, which could compete with illegal downloading. This stopped the hemorrhaging, though not without leaving a disastrous trail. Traditional music retailers, distributors, and other middlemen were forced out. Revenue streams never recovered. With the Stop Online Piracy Act (SOPA), the music industry, joined by the entertainment industry, was trying to undo some of the damage. If enacted, it would have caused significant collateral damage, but it would have done nothing to reduce piracy. This is covered widely in the blogosphere. For example, consider blog posts by Eric Hellman [1] [2] and David Post [3].

While SOPA is dead, other attempts at antipiracy legislation are in the works. Some may succeed legislatively and may be enacted. In the end, however, heavy-handed legislation will fail. The evolution towards ubiquitous information availability (pirated or not) is irreversible. Even the cruelest of dictators cannot contain the flow of information. Why would anyone think democracies could? Eventually, laws follow society’s major trends. They always do.

When Napster became popular, the music industry was unable to fight back, because its existing distribution channels had become technologically obsolete. Napster was the large random move that made visible a new valley at lower altitude. Without Napster, some other event, circumstance, or product would eventually have come along, caused havoc, and be blamed. Antipiracy legislation might have delayed the music industry’s problems in 1999, but it will not solve the entertainment industry’s problems in 2012.

In the new market, piracy may no longer be the problem it once was. Consumers are willing to pay for convenience, quality of service, and security (absence of malware). Piracy may still depress revenues, but there are at least three other reasons for declining revenues. (1) Revenues no longer support many middlemen, and this is reflected in lower music prices through free-market competition. (2) Some consumers are interested in discovering new artists themselves, not in listening to artists discovered on their behalf by record labels. (3) The recession has reduced discretionary income.

It is difficult to assess the relative importance of disintermediation, behavior change, recession, and piracy. But the effect of piracy on legal downloads is probably much less than thought. This may be good news for the music industry. After many large and disruptive moves, the music market may be near a new global minimum. Here, it can rebuild and find new profit-making ventures. These are the kind of conventional “small” moves for a normal, non-disrupted market.

Other information markets are not that lucky.