It’s an oft-repeated tale. An industry gets disrupted by upstarts with new technologies and business models. The incumbents act quickly – turning to their legal team for advice. Litigate and legislate and the typical responses that come back.
The approach to SOPA and PIPA is hardly new. We’ve seen this play out many times in many industries, most notably in the music recording industry. But in each case, the approach ultimately fails. Sure, it may slow the erosion of your business, but in the end a broken business model is still broken. And all of those efforts to solve the problem through legislative and legal efforts simply distract companies from focusing on what they really need to do, and often alienate your customers.
SOPA (and PIPA) are not the only current examples of this. The Research Works Act (H.R. 3699) recently introduced by Representative Carolyn Maloney (D-NY), aims to reverse the current public access policy under which any taxpayer-funded research is provided free of charge via the NIH website after 12 months.
The bill is being pushed by scientific journal publishers, who currently get a 12-month exclusive to sell the research in recognition of their efforts to coordinate the process of peer review.
My goal here is not to debate the specific merits of the Research Works Act nor those of PIPA and SOPA. Instead, I’d like to suggest a better way forward for publishers than relying on legislation and litigation. But before I do, I think it’s important to note that public policy or legal solutions are certainly appropriate in some instances.
My first job out of school was with a startup called Legi-Tech, a McClatchy-backed online service which tracked legislation. (This was, of course, in the pre-Internet days.) Legi-Tech soon faced a competitor – it turned out that the State of New York decided that providing access to legislative information on a subscription basis was an attractive opportunity for them as well. Fair enough – we believed we could certainly put out a better product than the State could. But the State, or its Legislative Bill Drafting Commission to be specific, went further. They made the full text of new bills available on their service 2-3 days before the printed copies were made available to the public – or to LegiTech, to provide through our service. We believed that violated the freedom-of-information act – they were giving preferred access to public information to those who paid them. So, we hired lawyers and filed suit. Eventually, we won a settlement. Eventually, while we won that battle, we lost the war and Legi-Tech ultimately was shuttered. But in this instance, litigation seemed proper. We were not looking to protect our own rights, but rather to fight unfair business practices of the state-owned entity.
In most cases, litigation and legislation are the wrong approach.
Rather than investing in lawyers, what if these companies invested their time and efforts into trying to identify the best possible experience for their users?
For example, with movies, it’s pretty straightforward. The “going to the movies” experience is very different than the “I’m tired – let’s stay in and watch a movie” experience. Yet, as Fred Wilson notes in his Scarcity is a Shitty Business Model post, the movie industry as a whole would make significantly more money if they would make new releases available in theaters, on DVD and streaming, globally on the same day. But, with the exception of some small indie movies who are experimenting, the industry refuses to adapt and loses out – to piracy, to video games and to other forms of entertainment.
For b2b content, it’s largely the same. Journal publishers seem concerned they will lose out on the one-off use. To me, this seems misguided. B2B publishers should look to get 80-90% of their revenue from their core markets. For journal publishers, this would include life sciences companies, universities and government agencies. Their focus should be on delivering the best solution to meet the workflow of those users – on desktops, tablets and other platforms. That's where they can maximize their revenue opportunities.
Yes, there will be light users who have an occasional need for their content. Aggregators can pick up some of that business – by making their content easy to find and by providing top-notch metadata, summaries and analyses, which will make those users’ jobs easier. But the answer is not to make that content inaccessible via the public web.
A good example of this is the market for SEC filings. In the pre-Internet days, there were companies that made their living by Xeroxing copies of SEC filings and overnighting them to users. When the SEC decided to put their filings online via EDGAR, it could have been the death of these providers. Yet today there are a half-dozen or more filings providers (Thomson Reuters Disclosure, EDGAR Online, ICC, Perfect Information, Morningstar) all finding their own niche in this competitive space. While the one-off user is typically happy with the free service from the SEC, the business user is happy to pay for better search and better access, embedded within their workflow.
And, of course, the digital music business provided great lessons for other industries. The music industry started out with an L&L (legislation and litigation) approach, but it failed pretty miserably. Users wanted a way to get all of their music onto the devices they used in their daily life, and the threat of lawsuits were not a major barrier. What changed the industry was iTunes. Once users had an easy and convenient way to buy music for their iPod most chose that path, abandoning the free downloads. Today, with iTunes, Amazon, Google Music, Rhapsody, Spotify, HypeMachine and others, there’s no reason for most to pirate music.
The organization with the biggest push behind SOPA/PIPA is, of course, the Motion Picture Association of America. This is the same organization that sued to stop the VCR in the 70s, saying it would kill the motion picture industry. Of course, DVDs (the successors to VHS) now account for a third of their revenue. This should come as no surprise. The CEO of the MPAA is former Senator Chris Dodd, who succeeded former Kennedy aide Jack Valenti. The day that the MPAA hires a product person to run them will be the day that industry changes.
Of course, there will always be the handful of users who will choose piracy. For the most part, these are users for whom their time is less valuable than money. And they’re not likely to buy your product regardless. It’s a lot like the market for counterfeit luxury goods. When my niece was around 10 years old, she wanted a Kate Spade handbag for Christmas. Luckily, the tabletop vendor near my office had them for $25. Now, lobbyists will claim that my purchase cost the real Kate Spade $300; but there’s zero chance I’d have bought her a real one, even if no counterfeits were available. As Tim O’Reilly eloquently notes:
The people who are pirating are most likely the people who would never give you a nickel to begin with. Piracy serves people on the fringes who are not being served adequately by legitimate markets. Frankly, if people in Romania can download my books and enjoy them, more power to them. They weren’t going to pay me anyway.
The pro-SOPA lobby puts forth estimates that piracy of digital media costs the US $200-250 Billion per year and an amazing 750,000 US jobs. Yet, all the calculations of losses are bogus, as noted above. The only real economic losses come around the fringes – where you have users willing to pay for a service but who choose to use an otherwise free or inexpensive version. And that $250 Billion figure? It’s made up. According to the Cato Institute’s Julian Sanchez:
The $200–250 billion number had originated in a 1991 sidebar in Forbes, but it was not a measurement of the cost of “piracy” to the U.S. economy. It was an unsourced estimate of the total size of the global market in counterfeit goods. Beyond the obvious fact that these numbers are decades old, counterfeiting of physical goods imported in bulk and sold by domestic retail distributors is, rather obviously, a totally different phenomenon with different policy implications from the problem of illicit individual consumer downloads of movies, music, and software. The 750,000 jobs number had originated in a 1986 speech (yes, 1986) by the secretary of commerce estimating that counterfeiting could cost the United States “anywhere from 130,000 to 750,000″ jobs. Nobody in the Commerce Department was able to identify where those figures had come from.
Now, let’s look at what most media companies have failed to do, while they’ve been fighting the legislation & litigation battles:
- They’ve failed to identify ways to leverage the changes in technology and media consumption to create new products for their core customers.
- They’ve failed (for the most part) to introduce compelling new mobile or tablet-based applications.
- They’ve largely failed to experiment with new business models, instead focusing on keeping the status quo.
- They’ve largely failed to embrace the technologies, tools and approaches (cloud, agile development) which the upstarts have used to displace them.
All in all, they’ve failed to create significant value-add that will give their customers no reason to ever consider the lesser, free alternatives and to reinforce the overall value of their brand.
Now, that’s not to condemn all media companies. There have certainly been sparks of innovation across all segments. But on the whole, publishers have been focusing a lot more energy on legislation and litigation than on innovation. And that’s a strategy that’s destined to fail.