The Volokh Conspiracy - "There's Always Some Other Business Model":

A conversation that I had yesterday reminded me of something I posted nearly three years ago; since the issue still seems salient, and since the original post was in the pre-comment era of this blog, I thought I'd re-post the item and see what people think about it.

One argument I've often heard against intellectual property is that "there's always some other business model." If you can't make money selling the work, because people can copy it for free, no problem: You just need to find some other way to make money — tie-ins, product placement, and so on.

For instance, say that virtually all TV viewers start using a hypothetical new technology (just to make up a name for it, let's call it ViTo) that lets them watch all programs (cable or broadcast) for free, and lets them seamlessly skip commercials. Pro-I/P argument: This will mean much less incentive to create new works, and thus much less new TV programming. Anti-I/P argument: No problem; there's always some other business model. Shift from advertising and pay TV to, say, product placement (advertising Coke by having Coke cans appear as props in the show, or praise of Coke appear as part of the dialog) — that will provide the revenue needed to make people invest in making more programming.

This argument does have some merit, in rebutting the extremist pro-I/P argument that "If it weren't for intellectual property, we'd have zero new works being created." Like most predictions that contain the words "zero," "always," or "never," this is mistaken: Some people will find some ways to make some money from the works even without intellectual property, and others will do it without a profit motive (consider blogs, for example). The extremist argument has always been hyperbole, not reality. But this leaves the moderate pro-I/P argument that "If it weren't for intellectual property, we'd have much less investment in new works" — and the "there's always some other business model" argument isn't really much of a response to that.

1. How effective will the other business model be? To begin with, the other business model might be able to raise a lot less money than the intellectual property model can. I'm not an advertising expert, but my sense is that product placement isn't effective for all products; and when it is effective, it isn't as effective as traditional advertising. One piece of evidence for that: While some product placement is going on, most advertisers still prefer traditional advertising. If product placement were that cost-effective, then we'd probably (not certainly, but probably) be seeing a lot more of it.

Right now, there are several possible income streams for television: For instance, advertising, subscriptions, product placement, charitable funding, and on-air fundraising from viewers. If advertising and subscriptions are no longer options, the other streams may provide some revenue. But there's no reason to think they'll provide anywhere near as much. The result may be much less investment in production of original TV programs.

2. What will be the side effects of the business model? But even if product placement will provide enough revenue to produce some TV programs, how will those programs be different from the current ones? Upside: They won't be interrupted by commercials (since those will be pointless). Downside: Their content will have to change considerably — plots will start revolving around products; the decor will be changed to contain more products; production investment will shift to those sorts of shows that offer more product placement opportunities.

And consider a particular kind of show: TV news. Do you really want product placement in TV news? Perhaps there's a bit of it going on in some situations, though my understanding is that such coverage-for-advertisers deals are still considered unethical in news shows. But if advertising and subscription revenue are no longer options, and product placement is pretty much the whole game, such product placement will become routine; news programs will cover those "news" stories that benefit some company (either a company that's being positively covered, or a leading competitor of a company that's being negatively covered) that's willing to pay them. Hey, it's a business model. It's just not one that's very good for viewers.

(Incidentally, I understand that many TV news programs already lose money for the network, but the network is willing to fund them to preserve its reputation, or because of social or government pressure. But that will become much harder if advertising and subscription revenues dry up, and the programs start losing much more money.)

3. Would we buy this argument for other products? Say that lots of people are shoplifting from a store, to the point that others are starting to think that it's OK to steal from stores. We could tell the store owner: "Don't whine to us about that, or demand government intervention to protect your supposed property rights; choose another business model that isn't harmed by shoplifting! Start carrying only promotional goods with lots of logos, which some advertisers will pay you to carry. Or just rely on the voluntary contributions of paying customers. In any case, come up with something, don't demand government help in the form of police or courts."

I don't think we would, because we'd realize that (1) the other business models may be much less effective, and if stores have to shift to those models, there'd be many fewer products sold, and (2) the other business models may have undesirable side effects, for instance that consumers could only get goods with product placement (promotional slogans), since those are the only goods that stores will be able to carry. Rather, we'd think that the store owner should be protected by the government — by having the legal system enforce property law — from consumer infringement of its property rights.

Now of course one can argue that tangible property is different from intellectual property, for instance because it's nonrivalrous; I won't get into that debate now. But the store example shows that the argument that "there's always some other business model" doesn't really carry independent weight. Once you conclude that the seller has no legitimate property right in some kind of property (whether television programs or clothing), you can then pooh-pooh its claims by saying "there's always some other business model." But what's doing the work in that argument is your initial rejection of the seller's property right claim — not your argument about other business models.

UPDATE: Glen Whitman (Agoraphilia) comments.

	[Eugene Volokh, June 15, 2006 at 6:31pm] Trackbacks "There's Always Some Other Business Model": A conversation that I had yesterday reminded me of something I posted nearly three years ago; since the issue still seems salient, and since the original post was in the pre-comment era of this blog, I thought I'd re-post the item and see what people think about it. One argument I've often heard against intellectual property is that "there's always some other business model." If you can't make money selling the work, because people can copy it for free, no problem: You just need to find some other way to make money — tie-ins, product placement, and so on. For instance, say that virtually all TV viewers start using a hypothetical new technology (just to make up a name for it, let's call it ViTo) that lets them watch all programs (cable or broadcast) for free, and lets them seamlessly skip commercials. Pro-I/P argument: This will mean much less incentive to create new works, and thus much less new TV programming. Anti-I/P argument: No problem; there's always some other business model. Shift from advertising and pay TV to, say, product placement (advertising Coke by having Coke cans appear as props in the show, or praise of Coke appear as part of the dialog) — that will provide the revenue needed to make people invest in making more programming. This argument does have some merit, in rebutting the extremist pro-I/P argument that "If it weren't for intellectual property, we'd have zero new works being created." Like most predictions that contain the words "zero," "always," or "never," this is mistaken: Some people will find some ways to make some money from the works even without intellectual property, and others will do it without a profit motive (consider blogs, for example). The extremist argument has always been hyperbole, not reality. But this leaves the moderate pro-I/P argument that "If it weren't for intellectual property, we'd have much less investment in new works" — and the "there's always some other business model" argument isn't really much of a response to that. 1. How effective will the other business model be? To begin with, the other business model might be able to raise a lot less money than the intellectual property model can. I'm not an advertising expert, but my sense is that product placement isn't effective for all products; and when it is effective, it isn't as effective as traditional advertising. One piece of evidence for that: While some product placement is going on, most advertisers still prefer traditional advertising. If product placement were that cost-effective, then we'd probably (not certainly, but probably) be seeing a lot more of it. Right now, there are several possible income streams for television: For instance, advertising, subscriptions, product placement, charitable funding, and on-air fundraising from viewers. If advertising and subscriptions are no longer options, the other streams may provide some revenue. But there's no reason to think they'll provide anywhere near as much. The result may be much less investment in production of original TV programs. 2. What will be the side effects of the business model? But even if product placement will provide enough revenue to produce some TV programs, how will those programs be different from the current ones? Upside: They won't be interrupted by commercials (since those will be pointless). Downside: Their content will have to change considerably — plots will start revolving around products; the decor will be changed to contain more products; production investment will shift to those sorts of shows that offer more product placement opportunities. And consider a particular kind of show: TV news. Do you really want product placement in TV news? Perhaps there's a bit of it going on in some situations, though my understanding is that such coverage-for-advertisers deals are still considered unethical in news shows. But if advertising and subscription revenue are no longer options, and product placement is pretty much the whole game, such product placement will become routine; news programs will cover those "news" stories that benefit some company (either a company that's being positively covered, or a leading competitor of a company that's being negatively covered) that's willing to pay them. Hey, it's a business model. It's just not one that's very good for viewers. (Incidentally, I understand that many TV news programs already lose money for the network, but the network is willing to fund them to preserve its reputation, or because of social or government pressure. But that will become much harder if advertising and subscription revenues dry up, and the programs start losing much more money.) 3. Would we buy this argument for other products? Say that lots of people are shoplifting from a store, to the point that others are starting to think that it's OK to steal from stores. We could tell the store owner: "Don't whine to us about that, or demand government intervention to protect your supposed property rights; choose another business model that isn't harmed by shoplifting! Start carrying only promotional goods with lots of logos, which some advertisers will pay you to carry. Or just rely on the voluntary contributions of paying customers. In any case, come up with something, don't demand government help in the form of police or courts." I don't think we would, because we'd realize that (1) the other business models may be much less effective, and if stores have to shift to those models, there'd be many fewer products sold, and (2) the other business models may have undesirable side effects, for instance that consumers could only get goods with product placement (promotional slogans), since those are the only goods that stores will be able to carry. Rather, we'd think that the store owner should be protected by the government — by having the legal system enforce property law — from consumer infringement of its property rights. Now of course one can argue that tangible property is different from intellectual property, for instance because it's nonrivalrous; I won't get into that debate now. But the store example shows that the argument that "there's always some other business model" doesn't really carry independent weight. Once you conclude that the seller has no legitimate property right in some kind of property (whether television programs or clothing), you can then pooh-pooh its claims by saying "there's always some other business model." But what's doing the work in that argument is your initial rejection of the seller's property right claim — not your argument about other business models. UPDATE: Glen Whitman (Agoraphilia) comments.