Thursday, April 07, 2005

To 'Ster With Love

Here is another installment of the 'Ster Stir. This one deals with the history of the conflict between innovation and copyright laws. It's from the New York Times:

In the early 1900's, the disruptive technology was player pianos. Manufacturers of player piano rolls purchased a single copy of the sheet music of a song, hired someone to record the music and then sold these mechanical reproductions to consumers. The songwriters held that this was copyright infringement, while the piano roll manufacturers pointed out that they had paid the appropriate copyright fees when they purchased the sheet music.

In 1908, the Supreme Court found in favor of the piano roll manufacturers, but practically invited Congress to consider new legislation on the issue. Congress responded with the Copyright Act of 1909, which created a new form of intellectual property, mechanical reproduction rights.

...In the 1908 case, songwriters did not try to ban player piano technology. They clearly recognized that the additional distribution of their songs was potentially advantageous. Their goal was simply to get a fair share of the proceeds from the piano roll sales.

Another directly relevant Supreme Court decision is Sony v. Universal City Studios, a 1984 case involving the use of video recorders in the home. The film studios argued that Sony should be liable for copyright infringement since its video recorders could be used to copy movies and television programs illegally.... The studios lost the Sony case, but it forced them to take the home video market seriously.

Their first instinct was to set a $50 to $60 price for videocassettes. But by choosing a high price, they stimulated the development of the video rental market, giving users inexpensive access to movies. On the other hand, the availability of rentals stimulated the demand for VCR's. As VCR prices declined, more people bought them and the video rental industry flourished, creating a new, rapidly growing outlet for studio productions.

In the late 1980's Disney began to experiment with lower prices for videos, hoping to bypass the rental stores and sell directly to home users. Disney's 1987 video release of "Lady and the Tramp" was priced at $29.95 and sold over 3.2 million copies, making it the best-selling video as of that date. Its record was soon eclipsed by "E.T.," which sold 14 million copies at $19.95 apiece.

...The critical lesson from the history of the VCR is this: If consumers have ways to share content, either via rental markets or via the Internet, you will have to set low prices to induce them to buy. But low prices may well stimulate enough volume to make up for the lost revenue.
Now that's what I call rocket science.

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