Joel Waldfogel on Digital Renaissance

WaldfogelThe digital revolution poses a mortal threat to the major creative industries—music, publishing, television, and the movies. The ease with which digital files can be copied and distributed has unleashed a wave of piracy with disastrous effects on revenue. Cheap, easy self-publishing is eroding the position of these gatekeepers and guardians of culture. Does this revolution herald the collapse of culture, as some commentators claim? Far from it. In Digital Renaissance, Joel Waldfogel argues that digital technology is enabling a new golden age of popular culture, a veritable digital renaissance

Are we living in a digital renaissance? How can we tell?

We are absolutely experiencing a digital renaissance. There are a few big signs. The first is the explosion in the number of new cultural products being created. The number of new songs, books, movies, and television shows created and being made available to consumers has increased by large amounts. There has been a tripling in the number of new songs, and similar growth rates for other sectors.

Of course, quantity alone is not enough to qualify a renaissance. What makes the recent period a renaissance is that the recent crops of new products are appealing to consumers, compared with old products. By various measures, new music, television shows, books, and movies are really good compared with earlier vintages.

And finally, we know it’s a digital renaissance because the higher quality of the new vintages is driven by the products made possible by digitization, i.e. new technologies that make it possible for small-scale creators and intermediaries outside of the traditional mainstream to bring products to market. The fruits of the digital renaissance include the music on independent record labels, the self-published books, movies from independent film makers, and television shows distributed outside of the traditional distribution channels. Again, many of these new products are created and distributed without the support of the traditional cultural gatekeepers (major record labels and movie studios, traditional television networks, and major publishing houses).

What will happen to traditional gatekeeping? Is it going away or will we see the creation of new gatekeepers?

First, while lots of creation now happens outside of the traditional gatekeepers, those traditional gatekeepers still have an important role. Once an artist has demonstrated his or her commercial promise, the traditional players are well-placed to bring new works to a large audience. Quite often, an artist will become known using independent channels and will then get snapped up by a traditional player. This happened with the famous self-published Fifty Shades books, and it happens with many musical acts—think Arcade Fire—whom consumers first encounter on indie labels.

Even though digitization has allowed a lot of people to create their work and put it in front of potential audiences, consumers have limited attention and limited capacity to figure out which of the new products are good. This puts a lot of power in the hands of new kinds of gatekeepers, the people choosing the content at Netflix, or the people deciding which products to recommend at Spotify or Amazon.

Why has piracy been a bigger problem for some creative industries over others?

Music faced piracy first and had to “write the book” on how to respond. It’s hard to go first since there are few examples to follow. It took the music industry four years to respond to Napster, until the iTunes Music Store. For four years there were convenient ways to steal music digitally but no convenient way to buy it. In the meantime, many consumers had become accustomed to getting music without paying. Music also had the problem that digital music files are small enough to move quickly over the Internet, while movie files were initially too large.

The industries hit after were also able to learn from the experience of the music industry, and responded more quickly. For example, roughly a year after the appearance of YouTube, the major television networks were making their shows available online free of charge.

Having convenient ways to buy digital products goes a long way toward stemming piracy. One of the first impacts of Spotify—the streaming music service—was to substantially reduce music piracy. More recently, Spotify (and other paid subscription services) have also reversed the long decline in music revenue.

What are your thoughts on copyright law in the United States? Does it need to be stricter? Better enforced?

The reason we have intellectual property rules, such as copyright laws, is to provide incentives for people to create. The goal is to make sure there is a steady supply of new products that consumers find appealing.

The digital era has ushered in a great deal of piracy and has therefore threatened the revenue of creators and intermediaries. If that’s all that digitization had done, then we would expect a drop off in creative activity. And we would need a stiffening of copyright enforcement just to keep creative incentives where they were.

Fortunately, digitization has also reduced the costs of creation and distribution, along with its facilitation of piracy. And the net effect of those two offsetting forces has been to unleash a large amount of good new creative production.

Many people in the creative industries would like to see stronger enforcement of intellectual property protections. They may be right, for a variety of reasons, including just respect for property rights. But the evidence in the book shows that we don’t need a strengthening of intellectual property rights in order to maintain the creative incentives that prevailed before Napster. We are, after all, experiencing a digital renaissance.

When representatives of creative industries lobby for stricter copyright protections, are their arguments sound? How should we assess the health of their industries?

The creative industries are really good at what they do, particularly in the US. And during the digital era many creators and intermediaries have felt real pain. U.S. recorded music revenue fell  by more than half in the decade after Napster. Moreover, users in many countries have blithe disregard for intellectual property. When the industry points out these facts, they are telling the truth.

But the pain of a particular industry is not as relevant to public policy as its output. If the creative industries could no longer cover costs of creating new products and new creative activity dried up, then we would require changes in public policy to keep the consuming public happy.

When the industries go before Congress for legislative assistance to protect their revenues, however, it should be to secure a steady supply of good new products, not to protect their revenues and incomes for their own sakes.

We should assess the intellectual property regime according to whether we are seeing a steady and robust supply of new products that consumers find appealing. And that we are.

How does the old adage “Nobody knows anything” come into play in this new era of digitization?

New products in most industries typically fail. Nowhere is this more common than in the creative industries, where roughly 90 percent of new products fail to generate enough revenue to cover their costs. This “hit or miss” aspect to creative production is what makes an explosion in new products so potentially valuable.

To see this, suppose that everyone knew everything, meaning that intermediaries could accurately predict which new products would find favor with consumers. Then a cost reduction giving rise to new products would bring forth the products that were not sufficiently promising to be worth delivering before. There would be some benefit to consumers, but it would be small.

Contrast that to the real world, in which we can’t really predict which products will be good before we spend the money to test them with consumers. In that—our real—world, a tripling in the number of new products brings with it lots of unsuccessful ones as well as some really successful ones that consumers find valuable.

What are the potential pitfalls of digitization in the creative industries? What should we be wary of?

Two things come to mind. First, there is so far no evidence that the undermining of creative nurture by the traditional intermediaries— the publishers, movie studios, and record labels, for example—has undermined the quality of new products, at least in the sense of being appreciated by contemporary fans and consumers. But it will be interesting to see whether the fruits of this era are still appreciated 25, 50, or 100 years from now.

Second, the new digital economy is increasingly dominated by a small number of players. These include Google and Facebook, Apple and Amazon, and Netflix and Spotify. So far, most of what these players have done has helped to deliver the renaissance. But many of these players could become influential gatekeepers, with outsized influence on what succeeds. I don’t see any evidence of this yet, but it’s something we should be watchful about. What makes things worse is that most of these players keep their data secret, so it’s really hard to know what’s happening to the consumption of particular products. This, in turn, makes it hard to keep tabs on the health of the industries. The digital renaissance can continue only as long as a large swath of creators can continue to create, and audiences can discover the new works.

Joel Waldfogel holds the Frederick R. Kappel Chair at the University of Minnesota’s Carlson School of Management. His previous books include Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays. He lives in Minneapolis.

Calling all future PUP authors: take notes!

Our friends over at The Rumpus (for those who don’t know, it’s an online magazine taking the pop out of culture and offering insight on what really matters.  For the full 411 check it out here!)  have posted a hilarious and oh-so-true piece by Ethan Watters on what (not) to do during an author appearance on “The Daily Show.”  Seriously, the man is spot on in his assessment.

Having accompanied an author or two in my day to major television interviews, what he says can be applied to pretty much any on-air appearance (except maybe Martha who will not, in fact, make eye contact.)  Television is a strange game to play for those used to parking it in front of a computer screen and letting those synapses fire – and it’s even stranger to watch from behind the scenes so just imagine what being on camera is like!

What’s your best advice for our up-and-coming green room guests?