

Piracy is a Market Correction. - asciilifeform
http://www.reddit.com/r/reddit.com/comments/ar53y/talking_to_pirates_the_people_who_steal_software/c0izjj4

======
solutionyogi
Pardon me, but this is _total bullshit_.

Piracy is not market correction. There is no reason a particular product has
to be priced relative to the marginal cost of production. According to his
logic, an audio cd should cost less than a dollar.

Producers can price their product however they want. Consumers have the choice
to buy it if they can afford it. Trade happens only if both parties think that
they are getting value out of it, econ 101.

Unfortunately in digital age, a consumer can get the product by illegal means
even if they can't afford it and producer doesn't really have a way to stop
this illegal behavior.

I am surprised that this post reached top of hacker news.

~~~
pyre
> _Unfortunately in digital age, a consumer can get the product by illegal
> means even if they can't afford it and producer doesn't really have a way to
> stop this illegal behavior._

That may be. But if the consumer consumes the product without paying because
they couldn't afford it in the first place, can you really say that you lost
money on that? If they didn't have the money to buy it in the first place, how
could they have given you money for it if piracy wasn't an option?

The _real_ cause of piracy (other than availability) is the over-saturation of
media markets that we have. Example: If I want to buy a new video game for
$60, that's maybe 4 or 5 CDs that I can't buy, so I download those CDs
instead.

I know that some people will call it naive, but we live in a society where we
are bombarded by marketing in which everyone tries to shout the loudest or
find the best way to subtly convince you that you _need_ their product (i.e.
you won't be cool unless you have X). But we are now in a marketplace where
the consumer can choose to pay for X and pirate Y instead of just deciding to
(exclusively) buy X or Y. So it comes down to this: If everyone is able to
convince me that their product is a necessity, then I'll end up acquiring all
of those products, but only some of them will be paid for.

Note: I'm using a hypothetical 'me/I' in this explantion.

~~~
mtoledo
I don't think this argument really holds.

Saying that you couldn't afford an item and therefore wouldn't have spent any
money on that doesn't really mean you'd never spend _any_ money on that given
a free pirated option wasn't available.

The point being we do have the money, and we do can afford it. It's just that,
when you can pirate it, you end up spending your money on other things
instead. But its not like you'll never have enough money that you'll ever be
able to buy one game.

It's interesting to observe the Playstation 3's market, because they've so far
done what was unthinkable since way back the times of the PS1: a console you
can't pirate.

So I have a loooot of friends that live on Brazil, and that pirated all their
PS2 games. And that pirate music and movies too. Some even have an Xbox360 and
pirate games on it too. But all of them buy PS3 games. They don't just leave
their console there hanging, playing demos, as you'd expect.

~~~
pyre
No, it just means that the money that they do spend they redirect towards PS3
games. There are obviously people who _always_ go for the 'low-cost' option
which is usually pirating the music/game/video/etc. But you can't make that an
absolute. You can't say that _everyone_ operates in the fashion, just the way
that I didn't say that my explanation applied to everyone.

People have a limited amount of income, but an insatiable desire to consume.
How people deal with this varies from person to person. Though we can
generalize it a bit, there is no catch-all generalization that applies to
everyone.

In the future though, don't use anecdotes to try and prove a point. 'everyone
does X because my friends in Brazil do X' is not a valid argument.

> _Saying that you couldn't afford an item and therefore wouldn't have spent
> any money on that doesn't really mean you'd never spend any money on that
> given a free pirated option wasn't available._

If I download $3,000 worth of media per month, but I only make $3,500 per
month after taxes, how can you posit that I would have bought all $3,000 worth
of media where pirating it not an option? If I use the 'pirate market' as a
way to consume outside of my income level (i.e. outside of my ability to
consume _without_ the 'pirate market') then how could I have purchased all of
those things?

To your Brazil example, what were your friends spending that money on when
they were pirating PS2 games or did their income level suddenly jump when the
PS3 came out?

~~~
mtoledo
hey, I absolutely agree about my anedocte not applying to everyone else. What
I wanted to illustrate was cases where, piracy not being an option, people
just actually buy the games, rather than not buying as some people believe.

As for the income/worth of consumed media for month, I _surely_ don't believe
the amount of lost sales or whatever companies claim is _exactly_ the amount
of consumed media. That's false as you clearly illustrate. It means people
would consume _less_ media, within their means.

All those friends of mine, would the xbox 360 not have pirated games, would
also have bought original games. They wouldn't just let it there, sitting.
Would they buy every each of their pirated games? of course not.

So my thought process is not like "if there weren't pirated media, people'd
pay for all they consumed as pirated items", but rather "weren't there pirated
media, people would either consume original media, or do something else, and
we can't tell that for sure". And therefore asserting that people who pirate
stuff "would have never bought that anyway" is wrong.

------
andrewljohnson
No, that's way too deep to be correct. Piracy is just an externality caused by
an out-of-date copyright law that doesn't take computers into account.

People "steal" the content because they want it, it's easy, and there are no
consequences (regardless of what the MPAA would have you believe).

It seems to be a big issue right now because there is an industry built around
the old copyright system. Eventually, those companies will perish or
transmogrify into something useful, and people won't even talk about piracy.

~~~
patio11
_people won't even talk about piracy_

No, producers will move to platforms where it is difficult to impossible. Care
to guess how many people have pirated the SaaS version of Bingo Card Creator
versus how many have pirated the downloaded version?

I am not the only person to have done the math here. Look at the sales of,
say, MW2 on consoles (where piracy is hard) versus PCs (where piracy is
trivial). Look at the PC games which actually sell, where World Of Please
Pirate This Shiny Flat Paperweight is probably, what, 4 of the top 20 SKUs at
any given time. There used to be a thriving PC games market. It has,
predictably, shrunk to those sectors where it is actually profitable, avoiding
sectors where 90% of the "customers" steal the product.

Every time I hear the online crowd whinging about nickle-and-dime models like
microtransactions, and not being able to "own" the software they planned on
stealing, I have a brief moment of that very hard to spell German word.

~~~
andrewljohnson
Sure, SaaS is a good model for some things. It certainly does have that nice
feature of being unpiratable. That makes sense of course... in SaaS you aren't
selling a digital copy that is fundamentally worthless. You are selling
computing power, updates, support... stuff you don't need bunch of arcane laws
to protect!

As copyright laws ease, some will turn to SaaS, but others will embrace the
model of letting a lot of people have something for free, and charging those
that can afford it.

Heck, people like to give books as an example of media that must be protected
and that will never be free. But guess what... the most popular Kindle authors
these days give many books away for free.

Moreover, the biggest companies have been turning a blind eye to piracy
because they believe it helps them sell more software, for ages. Microsoft is
the biggest example... as Bill Gates once said (and I paraphrase) - I'd rather
you steal my software than buy my competitor's.

~~~
alttab
Every single person on this comment thread that has agreed with the topic has
been downvoted.

Is it because the argument is fundamentally flawed, or are we seeing a little
groupthink here?

~~~
jacoblyles
Well, the original post is poorly reasoned and fails to preempt all the
objections from Econ 101 that can be raised against his point.

~~~
alttab
Possibly revisit supply and demand shifts in the first semester.

~~~
jacoblyles
The author is postulating that the price of a good is determined by its cost
of production, which is essentially the Marxist theory of value that has been
discredited for over a century. Else, he is proposing that the demand curve is
completely parameterized by cost of production, which is a radically new idea
that I sadly don't see much promise in.

~~~
alttab
I agree with you that demand isn't dependent on costs always - and I don't
think the author is either.

He's saying that demand is still high, as is supply. But because the
_marginal_ cost of each unit is so low (on the postulation of infinite
copies), that piracy is how the price is "fixed" economically speaking.

This isn't a pro-piracy position, but if you see it as each copy of the game
had to be physically manufactured piracy would drop to zero - otherwise it'd
be called theft.

~~~
jacoblyles
That the marginal cost of copying media is zero is a pretty mundane
observation. The author goes beyond this to hypothesize that demand moves
according to some abstract "fair price" (that happens to suit the author's
semi-Marxist definition of fairness), and that piracy only occurs when the
market price is set above this value. This second point is the only _novel_
bit of the author's post, and it's just not very good.

------
Super_Jambo
My position on this is to come from the other end, i.e. start at the moral
side then journey into the economic.

Economic laws have been developed over time for the good of society. We
started to settle and farm so we needed property rights. This was so your hunt
didn't kill my dairy cow - disrupting both our milk and cheese nommage.

Intellectual property rights exist then to ensure that society has a good
supply of IP. Their success should be judged not on the moral value of you
'stealing' my 'work' but on how the copywrite and patent systems changes
supply and demand curves from the baseline that would exist without the extra
rules (and costs associated with those rules).

Remember it was not illigal for you to hunt my dairy cow because of how unfair
that feels. If I'd been keeping a friendly rabbit alive society wouldn't have
bothered with property rights. Society wants more Meat and Cheese, not warm
fuzzies.

So where does that get us? Well, does anyone truly believe they'd be music
starved if they could only listen to the current back catalouge + what would
be made for the kudos / enjoyment / profit from merch & performing? No chance.
Music should be free, we have a VAST oversupply and there are ample incentives
to keep people supplying it without authorized monopolies.

Books? Movies? Games? With these the cost of production is alot higher, the
argument that people would do it for free still exists but it's less obvious
how they could leverage resultant fame into some kind of money spinning live
performance. I think here society needs to have the debate, but for it to be
useful it MUST be framed in terms of supply, demand and what behaviour the
system incentivieses. Not self-rightious moral 'right' of what you 'deserve'
either from the pirates or the artists.

------
albertsun
People pirate because they can and because when factoring in the punishment
and the chance of getting caught they come out ahead by pirating.

Let's say that a piece of software has price p and that you get value v from
it.

If v > p, then you will choose to buy it, getting v - p in consumer surplus.
If v < p, then you choose not to buy it.

Now let's say that you can pirate the software as well, with chance of getting
caught c and punishment if caught d. Pirating the software costs 0. If p > c *
d then it's economically rational to pirate it, getting overall value v - c *
d.

~~~
decode
You're basically asserting that people are rational agents doing subconscious
(or perhaps conscious) algebra in their heads. I thought we learned long ago
that people are not rational agents. Sometimes it is useful to model people as
rational agents, and sometimes not. But to say that people are actually
motivated, in a real factual sense, by some cost equation, just doesn't
correspond to reality.

~~~
jacoblyles
People respond to incentives. Sometimes in strange ways, at the edges. But
mostly they do.

------
jsz0
This article is full of naive statements which means everyone will discount it
but I feel like the core point is somewhat valid. Obviously content has to be
developed, art has to be produced, someone has to manage the whole thing, you
need to market it so people know it exists. Oh, and they all need health care
and a reasonable salary. That being said I feel like the content industry is
failing to adapt to people's habits for consuming their content. As a result
maybe piracy is a correction of sorts. People are creating a set budget of how
much they are willing to pay for entertainment. This includes cable/satellite,
access to broadband, and old fashion _offline_ entertainment. When you tally
it up that's a pretty good chunk of money before you even buy a single movie,
record or game. I don't want to listen to one or two CDs a month. I want a
dozen. Maybe I won't even like most of it but I like exploring what's out
there. Maybe I want to watch 3 or 4 movies a month. Not that unreasonable but
the stuff they play on cable/satellite is _awful_ to me. I don't want to watch
_those_ particular movies yet I'm actually paying for them anyway via the
cable subscription. I have a seriously short attention span for games. Maybe I
only want to play 5 levels of your game but I have to buy all 50 on the DVD
for $60. I only wanted 5% of your product but you were only willing to sell me
100% of it. So when I look at $0 versus $60 the $0 just seems more fair to me
so I go with it. I would pay $3 for it bundled into a subscription plan or
micro-payment system.

------
alttab
How many people steal Quickbooks? How many people steal ERP or CRM software?

Now how many people steal Photoshop, Microsoft Office, and computer games?

Its overpriced for the market, based on the added marginal value. The supply
is greater than demand (especially for digital products - versus services -
supplies are virtually unlimited), and people are correcting it by downloading
it off the internet for free. These people probably wouldn't have bought it
anyway - so its not stealing. And its not wasted resources by the these firms
so they can't count it on the books as a loss.

This is economics 101. A supply curve goes up with cost, a positive
relationship with price. As price goes up, demand goes down, and the market
price is where they meet in the middle.

Because it cost virtually nothing to copy bits, the supply goes up. As the
supply curve shifts up vertically, the demand doesn't necessarily change
(demand curve shifting to the right) to compensate to keep it at the same
price. Since demand is still at a constant rate (a certain number of people
want to play these games), but supply is practically unlimited, ethically
people can talk themselves into stealing it for free (correcting market
price).

As software developers I think HN is a perfect forum for audience
polarization, but the fact of the matter is both arguments have their merits
and can coexist without mutual exclusion.

After reading the article then looking at the comments I was actually very
surprised. But I'm merely adding my portion to the discussion.

~~~
marilyn
Producers of software like Photoshop and Office stand to benefit from user
level piracy.

For example, not many students and graphic artists starting out can afford to
buy a copy of Photoshop, let alone the entire Creative Suite. If all the
talented creative types opt to spend their time learning GIMP instead of
pirating Photoshop and learning how to use it, the companies that hire them
have no reason to buy the expensive software. In effect Adobe needs users to
pirate their software to ensure there are as many people as possible who know
how to use it, thus securing the sales to businesses.

~~~
nzmsv
Actually, MS has finally figured this out, and has a deal on Office for
students ("the ultimate steal"). It's Office Ultimate for $60. Pretty much
everyone I told about this who was using a pirated Office bought a copy.

~~~
aneesh
Yeah, this is their version of "get 'em while they're young". There's also
<http://dreamspark.com> which gives out free copies of Microsoft's developer
tools (Visual Studio, SQL Server, etc) to students.

~~~
Ras_
IEEE and ACM also dole out MS developer tools to students for free (price of
subscription). For example I got Windows 7 release to manufacturing -edition
from ACM this way two or three months before its launch date. They've since
pulled the plug on the offer.

------
dlytle
7 people at a LAN party I attended last month were in the process of trying to
buy the latest Borderlands DLC when someone pointed out it had Securom. I had
it in my Steam cart when I found it out, and promptly removed it. Everyone who
played the DLC that night played the pirated version instead.

There are certainly cases where piracy is a market correction of sorts, but
you certainly can't just narrow it down to a single cost-to-produce argument
like the linked article. It's a large variety of different problems and
incentives tied to a single, very polarizing, issue.

Trying to come up with a magic bullet solution/answer is just shooting at the
wind.

------
alextgordon
There are many different motives for piracy. Some are morally justifiable (at
least to me), some are not. For example:

* Lack of available funds. This is a mostly harmless (and sometimes beneficial) form of piracy. If a person has $75 and a product costs $200, then their two options are non-purchase and piracy. In this case, piracy cannot financially hurt the owner, as the person could not have bought the product in the first place.

Adobe have used this kind of piracy to their considerable advantage. High
school and college kids pirate Photoshop and become proficient. They go on to
become professionals, already locked into Photoshop.

* Unwillingness (but not inability) to purchase. This is a harmful type of piracy. A person has the available funds, but pirates something through pure unwillingness to pay for it. This is seen mostly in music and app store piracy.

This is a difficult kind of piracy to deal with. How do you compete with
something that is free? One notable success is Spotify, which has displaced a
proportion of piracy by merely being more convenient.

* Non-availability. This is particularly prevalent in the piracy of TV shows. Frequently a program is shown exclusively in the US, and is not available in other countries for months or years, sometimes never at all.

This is potentially financially harmful to rights owner, but as those pirating
the shows only have the options of non-purchase and piracy, it is justifiable.

* Superiority of the pirated product. For example, music at a higher bitrate than can be easily purchased, a pirated TV show that can be watched at any time in full 1080p, a pirated game that does not include restrictive DRM. This type of piracy is financially harmful.

Morally this is a bit of a gray area. Perhaps the moral solution is to
purchase the inferior product and pirate the superior one. This is however
still illegal. The general solution is for the rights owners to "compete" with
pirates, to provide equal products.

------
scotty79
There are two services. One is producing unique content and second is
delivering content to people who are interested.

Traditionally first service was paid by establishing monopoly for second
service and channeling disproportionate gains from providers of second service
to the providers of first service.

Since second service became ubiquitous (anyone can provide it at almost no
cost and without involving anyone else except himself and his customer) it
became virtually impossible to uphold this model of financing creative work.

Of course no one gives away old ways without putting up any fight, especially
if old ways brought him mountains of cash, but all antipiracy campaigns are
just futile attempts to play against the market that due recent developments
in communication technology made coupling used in the past infeasible.

There are new ideas (new for the industry) how one can pay for creative work.
Some are advertisement based. Some involve entangling content to services
provided by server that is under complete control of party who has deal with
content producer. Some (dumber ones) involve closing up content delivery
process by limiting capability of device.

Some things turn out to be more profitable some less. Market adapts to
advancement of technology. Some people are not seeing money that past
experience led them to believe they deserve but that's just the way life goes.

Technology giveth, technology taketh away.

------
Batsu
The authors best comments are in the last three paragraphs. The larger portion
of the text may not speak volumes to the how or why people pirate what they
do, but that last part really points out unfair comparisons that are drawn in
regards to software piracy and other (tangible goods) markets.

------
DrewHintz
Chris Anderson describes a similar idea in his book Free[1]. Anderson says the
price of an item converges towards its marginal cost, and the marginal cost of
duplicating information is essentially zero.

[http://books.google.com/books?id=lLZbXN2odVYC&printsec=f...](http://books.google.com/books?id=lLZbXN2odVYC&printsec=frontcover)

~~~
ct4ul4u
Chris Anderson is not actually an expert on anything, you know. He's just
somebody who has made a bunch of anecdotal observations and written a few
books about them.

~~~
decode
You just described the field of journalism.

~~~
blasdel
Nah, that's a media personality / talking head.

Journalism is the process of paraphrasing press releases into content to place
ads around, while self-aggrandizing about how democracy depends on your work.
Even Woodward & Bernstein were straight stenographers, just to _the acting
head of the FBI_ instead of some PR flack.

------
gabrielroth
Obviously this is totally wrong, for reasons others have pointed out on HN.
But it contains an interesting germ of truth: Consumer psychology around
pricing gets complicated.

A couple years ago, my local bagel store raised its prices. When they did,
they put a notice next to the counter saying, “To our valued customers: Recent
increases in the price of wheat have forced us to raise prices. We hate to do
this, but it’s the only way we can continue to pay our rent. This will be our
first price increase in almost eight years. We hope you understand our
situation.”

According to Econ 101, this sign was a waste of time. Customers will look at
the new prices and decide whether or not to buy bagels at those prices. In
fact, according to Econ 101, the bagel store might just as well have put up a
notice saying, “Dear customers: We are raising our prices because we’d like to
increase our profits, and we suspect that many of you are not very price-
sensitive.”

Of course, no one conducted an experiment to see what effect the sign had on
business, but I’m prepared to bet it helped minimize the drop in business from
the price hike.

Econ 101 has no concept of “fair share,” but consumers do, and they’re willing
to take losses to prevent someone else getting more than what they perceive to
be his fair share. (<http://en.wikipedia.org/wiki/Ultimatum_game>) This isn’t
right or wrong—it just is.

If you’re selling physical goods, you should sell them at whatever price
enables you to maximize your profits, just as Econ 101 suggests. But you
should also suggest, in the way you talk about your product, that the cost is
determined largely by the cost of your inputs.

If you’re selling intellectual property, well, it’s a bit more complicated
because everyone knows the inputs don’t bear on the marginal cost of each
item. But it might be helpful to let everyone know that you’re not getting
rich. Let your customers know you’re trying to support a family as an
independent software developer, or that you still work a day job to allow you
to make music. Don’t let people think you’re ripping them off.

Of course, when your product is easily available for free on the black market,
as is the case with piracy, none of this makes much difference. Consumers
prefer to pay the lowest possible price. Econ 101.

------
stse
This thread is a good example, for one of the reasons, why I try not to read
HN comments anymore. (Failed this time though, as I'm very interested in
serious discussions on this topic)

There's a lot of information out there for anyone who wants to actually try
and understand the issues, instead of dismissing people who have though about
them and claiming everything is bullshit, econ101 and stealing. How can you
even have a discussion with someone that can't even differentiate between
physical property and intellectual property?

Either we try and work around the issues and find solutions, or give up civil
liberties in the name of stagnating business models. Incomprehension and
ignorance must be the lobbyists best friends.

------
muffins
That article is so ignorant.

I pirate because I would never be afford all the things I want or use.

I'm not saying I wouldn't pay someday when I have money, but the $ to content
ratio is too high. It is not stealing a product, but a service. I'm stealing
an experience created by a company (video games) or a sound created by
musicians and not paying the entrance fee.

There is another side to the issue that he completely ignores.

~~~
derwiki
Why do you feel you deserve all the things you want that you can't afford?

~~~
emmett
Presumably because it's societally optimal for everyone to be able to consume
as much media as they like (since it has a marginal cost of zero). He gains,
no one else loses.

Of course, there's a massive externality to deal with: how do the people who
_create_ media get money for it? But in an optimal system (which we might not
be able to create) everyone would still be able to consume as much as they
want.

~~~
anamax
> Of course, there's a massive externality to deal with: how do the people who
> create media get money for it? But in an optimal system (which we might not
> be able to create) everyone would still be able to consume as much as they
> want.

How is it "optimal" if it doesn't address the obvious cost?

We don't consider compensating producers as an externality where physical
goods are concerned, so why is it an externality for intangible goods?

~~~
chromatic
> We don't consider compensating producers as an externality where physical
> goods are concerned, so why is it an externality for intangible goods?

That's a good question. One important difference is that, at the point of
which duplication is possible, the intangible good already exists.
Compensating the creator for creating the good may or may not encourage future
creations. It's a sunk cost. It's also the only cost.

~~~
anamax
> One important difference is that, at the point of which duplication is
> possible, the intangible good already exists.

Not so fast. Yes, duplicating intangible goods is relatively inexpensive, but
at point of purchase and use, tangible goods also exist, the costs are sunk,
etc, so they're exactly the same.

In both cases, payment compensates producers for effort and resources that
have already been expended.

~~~
emmett
Each incremental physical good deprives someone else of a copy of that good
which could otherwise be gained. This is not true for digital goods, which
have _zero_ marginal cost. No tangible good has a zero marginal cost.

~~~
anamax
> Each incremental physical good deprives someone else of a copy of that good
> which could otherwise be gained. This is not true for digital goods, which
> have zero marginal cost. No tangible good has a zero marginal cost.

While true, that's irrelevant to an argument that claimed that sunk costs were
an externality that wasn't all that important.

------
jacoblyles
That's an awful lot of paragraphs to get to the point that the marginal cost
of copying software is near zero, combined with a rant about what the author
personally considers to be a "fair" price.

~~~
thasmin
There's also the fixed costs (development) to consider. The point he's making
is that people are willing to may for software, but there's an inherent price.
If the vendor's price is higher than the inherent price, people will pirate.

~~~
jacoblyles
Piracy is not the function of "inherent" price. The author postulates some
price like (MC + (FC/units)) * 1.15 (where MC is marginal cost, FC is Fixed
cost, and units is units sold) below which is "fair" and people will not
pirate and above which is "unfair" and people will pirate.

If this is the case, then people should be less willing to pirate a game that
costs $millions to make than a game that costs $thousands because it is more
"fair" to pirate a game that was made on a budget than a game with high fixed
costs. I don't think that is the case. Rather, I think piracy is a function of
how much a pirate values his time and effort and how much he likes the
software product.

~~~
thasmin
I believe the author would add that the pirate's perceived value of the
product is also a function of piracy.

------
colinplamondon
Yes, if only greedy developers would drop their App Store prices from 99 cents
to 25 cents, all the Crackulous pirates would immediately start purchasing
apps. They just don't have the extra 75 cents to spare!

------
calcnerd256
theft is market correction ... if we take the market as orthogonal to morality

