Monday, January 16, 2012

Paywalls & SOPA: creating scarcity to build profits

Today is MLK Day in the U.S., and although too few companies recognize the holiday, I believe it should be observed. But here are a few thoughts on paywalls and SOPA – the only post planned for today.

Today's big media brouhaha involves Rupert Murdoch's condemnation of both Google, which he accuses of promoting piracy, and the White House, which has taken a measured approach concerning SOPA (the Stop Online Piracy Act).

"So Obama has thrown in his lot with Silicon Valley paymasters who threaten all software creators with piracy, plain thievery," tweeted Murdoch today.

At Google he threw out this one: "Piracy leader is Google who streams movies free, sells advts around them. No wonder pouring millions into lobbying."

Murdoch can have his opinion, but it is important to note that like newspaper paywalls, content copyright is not about protecting the economic rights of content producers (reporters, artists, photographers), it is about protecting the economic rights of content owners. Just as patents are sold from company to company until the owner has absolutely no relation with the inventor, copyright and paywalls are the profit generators of media owners.

In order to profit from these things, of course, one must create scarcity. This is the idea behind paywalls, and why newspapers that really have no real reason to install a paywall are on board with the idea. Sure, their traffic may be nil, but if all news can be put behind a paywall the scarcity of information will increase the value.

Most Internet observers don't believe the tactic (paywalls) will work simply because there are bound to be leaks, news outlets that don't play the game, and new news sources that will arise.

Likewise, the SOPA promoters can cry all they want about piracy, but the real issue is scarcity: if the Internet can be policed, and all copyrighted material removed, that material would be more valuable (the thinking goes). It's only fair, right?

But who owns the copyright on this content? Those rights have been sold from one company to another many time over. The same company that produced the original Kind of Blue recording no longer really exists. That company sold off the rights to Sony, a company that a few years ago showed its commitment to jazz by firing Wynton Marsalis. It now continues to profit from old jazz recordings without supporting jazz musicians today.

Rupert Murdoch's movie studio, 20th Century Fox, was created in 1935 when Fox Film Corporation, founded by William Fox in 1915, was merged with Darryl F. Zanuck's 20th Century, which has been formed in 1933. The creators of the great films of the old studio days are long dead, but Murdoch's News Corp. owns the rights today and wants to continue to profit. When Murdoch cries "piracy" it sounds too much to me like those rich investors who complain about the Fed continuing to hold interest rates low – they simply aren't making as much money on their holdings as they used to, and aren't they entitled to more profits from the money that sits idly in their accounts?

Why go threaten the freedom of the Internet over the issue of piracy? Why not go after the pirates themselves? If Google is such a promoter of piracy, then why not sue the company out of existence?

Because there is a clear risk that they might not win that case in court. Google has already survived court cases involving YouTube. The difficulty lies in who is the pirate and who is the one profiting from piracy.

For the casual YouTube user that uploads a video of their team's winning touchdown, using the broadcast feed from Fox, for instance, the uploader is not generally profiting. Instead, it is Google or the other Internet sites that host video that sell ads around the content that profit.

Google's response today to Murdoch's broadside was predictable: "Like many other tech companies, we believe that there are smart, targeted ways to shut down foreign rogue websites without asking U.S. companies to censor the Internet," Samantha Smith, a Google spokesperson, is quoted by the Daily Mail.

None of this would be controversial today, though, if the old media companies had not surrendered New Media advertising to companies like Google. Would Murdoch be pushing for SOPA if Google were a News Corp. company? But News Corp, and the NYT and other media companies have not been able to transition their full page ads and 30-second spots successfully to the web.

Putting content behind a paywall, or shutting down YouTube, or the thousands of file sharing sites, won't sell ads on The Times of London site. But it might reduce the total number of ad outlets available, thus allowing content owners to raise their prices enough to increase profits.

At least, that is the hope among old media titans.