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Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.





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Cato: More Tim Lee and Movies

A member of the audience - if I remember correctly someone from NBC - raised the question during my panel of whether there was any business model that would support the production of $200 million dollar movies without copyright. As Tim Lee points out, I didn't give a very good very good response to this question. The question was raised in a later panel, and someone, I think it was Mike Masnick, gave a much better response. Regardless, the question is a significant one. The short response is pretty simple: until they lost the VHS tape case, the only source of revenue for movies was for theatrical releases. Even if DVDs can be freely copied and given away for free, the revenue from theatrical releases can still sustain large scale productions.

The key point is that it is wrong to focus on the copies to which copyright applies as the sole source of revenue to pay for creative efforts. Open source software works because the complementary good produced - "expertise" - in the process of producing software, is scarce and so commands a premium in the market. So even if copies generate little revenue, as long as something else complementary is scarce, there is still a revenue source to pay for creation. In the case of movies the obvious candidate is theatrical sales. In the case of music, live performances.

A secondary issue is competition between "free" DVDs and "expensive" theatrical tickets. But no one is proposing that movie producers be required to release DVDs when movies hit the theaters. It is true that stuff gets on the internet quickly - for example, because people steal master copies and post them. But even without copyright this is illegal, nor does advocating the elimination of copyright mean that when you give someone a sealed envelope containing a master copy to deliver to a theater, they are entitled to rip it open and make copies along the way. Or that if you transmit an encrypted movie stream to a theater than anyone can hack into a router and crack your stream. Or, for that matter, that if you transmit encrypted data to your bank that anyone can hack into a router and crack that transaction. In short, the transmission between producer and theater owner should be protected - but that protection has nothing to do with copyright.

Another issue that is important lies on the cost side. Much of the cost of a $200 million dollar movie is the money paid to big name actors and directors. When the government grants a monopoly through copyright, some of that monopoly profit goes to owners of other scarce factors - actors and directors. Reduce the revenue by eliminating the government monopoly, and those people get paid less. But big name actors in particular are paid far more than their opportunity cost - the amount that is needed to get them to act rather than take another job. Harrison Ford was a carpenter before becoming a big name actor - presumably a modest premium over a carpenter's wage is what was needed to get him to take the acting job. So if half the revenue is lost by eliminating copyright - half the costs may disappear as well.

Finally, you may wonder - what happens when we all have big screen movie theaters in our homes, and none of us go out to watch movies anymore? Simple answer - the same technological change that is lowering the price of big screen TVs is also lowering the cost of making movies. While the home video is scarcely a good substitute for a $200 million movie production, the quality gap has narrowed enormously in the last 20 years, and it isn't unreasonable to think that in another 20 years, home production of "professional" quality movies will become cheap and practical.


Comments

I don't think movie theatres are going to disappear anytime soon. Going to the movies is as much a social event as a cultural event. People go to be with their friends, etc. Eliminate copyright, and A-list actors will still make a nice living, just not the absurd money they make now. Piracy can also be combatted, if not eliminated completely, by actors the way authors could fight piracy--by getting the word out to the public only to patronize authorized theatres (or booksellers, in the case of authors).

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