<p>It's called a <a href="https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem" rel="noreferrer">Principal-Agent Conflict</a>.</p>
<p>The RIAA/MPAA act as agents on behalf of the people who actually produce content (and consequently end-consumer value).</p>
<p>To maintain relevance to their principals', the RIAA/MPAA must signal value to them (i.e. claim loudly and repeatedly that they do something good for them [regardless of the validity of that claim]).</p>
<p>Firstly, this <a href="https://en.wikipedia.org/wiki/Signalling_(economics)" rel="noreferrer">signaling</a> is demonstrably an example of the Principal-Agent problem, in that it diverts resources away from actually advancing the principals' interests, but more so in that it creates a <a href="https://en.wikipedia.org/wiki/Perverse_incentive" rel="noreferrer">perverse incentive</a> for lobbying groups to fight <a href="http://www.gao.gov/products/GAO-10-423" rel="noreferrer">imaginary fires</a>.</p>
<p><a href="http://freakonomics.com/2012/01/12/how-much-do-music-and-movie-piracy-really-hurt-the-u-s-economy/" rel="noreferrer">The impact of piracy on the broad economy is believed to be near zero</a>, so IP laws are effectively just <a href="https://en.wikipedia.org/wiki/Rent-seeking" rel="noreferrer">rent-seeking</a> <a href="https://web.archive.org/web/20170810080507/http://levine.sscnet.ucla.edu/papers/cr35.pdf" rel="noreferrer"><span class="math-container">$^{[2]}$</span></a> anyway.</p>
<p>Whether or not that particular type of rent-seeking is <strong>always</strong> a drain on the broad economy (in that it distorts markets producing <a href="https://en.wikipedia.org/wiki/Deadweight_loss" rel="noreferrer">deadweight loss</a> in excess of the <a href="https://en.wikipedia.org/wiki/Externality" rel="noreferrer">externalities</a> corrected) is up for discussion, though it is <a href="http://eml.berkeley.edu/%7Eauerbach/ftp/ebot.pdf" rel="noreferrer">known to be possible</a> (insofar as the existence of an optimal tax [or government induced market distortion] is necessarilyy proof of the existence of an excessive tax).</p>

CC BY-SA 4.0
2020-08-11T02:45:43.557Z
Added bounty btw. Didn't think to mention earlier.
BCLC
CC BY-SA 4.0
2020-08-12T21:26:55.870Z
Added another bounty just now.
BCLC
CC BY-SA 4.0
2020-08-16T09:06:09.670Z
Do you agree with Alecos Papadopoulos?
BCLC
CC BY-SA 4.0
2020-09-16T13:34:12.310Z
added 400 bounty
BCLC
CC BY-SA 3.0
2015-07-03T10:18:23.357Z
Do you really believe that without a principal agent problem (without RIAA/MPAA), music and movies would be handed out for free over the internet?
FooBar
CC BY-SA 3.0
2015-07-03T12:30:46.393Z
I believe they would practice price discrimination better, and possibly release things for free eventually.
Jason Nichols
CC BY-SA 3.0
2015-07-03T12:32:04.503Z
To clarify I mean something like the Hardcover/softcover paradigm, maybe releasing a high quality for some price, a regular quality for less, and finally at some later time a low quality for free.
Jason Nichols
CC BY-SA 3.0
2015-07-07T02:10:40.090Z
I really like this answer. Quite well referenced as well. I do think @FooBar has a point. This can't possibly be the whole answer but I don't doubt it is at least a contributing factor.
Jamzy
CC BY-SA 3.0
2015-07-12T20:49:17.917Z
Thanks for the answer containing 10 links. will read later.
BCLC
CC BY-SA 3.0
2015-07-16T20:35:10.977Z
Jason Nichols 1 so agents are like intermediaries? 2 What signal is sent? From who to whom? 3 What is the relationship between lobbyists (who I assume here are the RIAA/MPAA?) and principal-agent problem? The RIAA/MPAA does things contrary to content producers' interests and so...? 4 In what way are IP laws rent-seeking? Like [this](http://economics.stackexchange.com/questions/6573/what-are-the-economic-benefits-of-slapp-in-file-sharing-piracy) you mean?
BCLC
CC BY-SA 3.0
2015-07-16T20:56:20.717Z
5 What exactly does the tax paper have to do with the RIAA/MPAA?
BCLC
CC BY-SA 3.0
2015-11-23T12:46:21.317Z
Evidence in support:  small indie labels have begun releasing their albums on vinyl bundled with a code to download the album, in effect practicing price discrimination.  Large record labels misinterpreted this as a simple resurgence of vinyl and are re-releasing older albums on vinyl.
Owen Sechrist
CC BY-SA 4.0
2015-07-02T17:15:50.533Z
2020-08-18T17:24:25.997Z
2020-08-18T17:24:25.997Z
Jason Nichols
<p>What I don't see here is an economic <em>model</em>, however rudimentary, that will allow us not to definitely answer the question but to clarify what are the critical issues. So here's one (totally rudimentary):</p>
<p>Consider a work of digitized and mass-commercialized content <span class="math-container">$x$</span>, like a song, a movie, or a book. Assume that in the short run, demand (desire) for it is fixed (unknown but presumaby estimable by past experience), <span class="math-container">$Q_T(x) = \bar Q_x$</span>.</p>
<p>The agent that can trade <span class="math-container">$x$</span> contemplates two options:</p>
<p><strong>Scenario <span class="math-container">$A$</span></strong> : sell <span class="math-container">$x$</span> at price <span class="math-container">$p_x$</span> and incur costs <span class="math-container">$C_{pir} &gt; 0$</span> to fight piracy.</p>
<p><strong>Scenario <span class="math-container">$B$</span></strong> : offer <span class="math-container">$x$</span> for free subject to the consumer being exposed to advertising, while in parallel sell <span class="math-container">$x$</span> at the same price <span class="math-container">$p_x$</span> free of any advertising. Assume that under scenario <span class="math-container">$B$</span>, pirated copies will still be offered, touting that they are free of cost and free of advertisement also. But we do not fight piracy here.</p>
<p>For scenario <span class="math-container">$A$</span>, denote <span class="math-container">$Q_{p,A}$</span> quantity sold, <span class="math-container">$Q_{pir,A}$</span> quantity acquired through piracy by the consumers.</p>
<p>For scenario <span class="math-container">$B$</span>, denote <span class="math-container">$Q_{p,B}$</span> quantity sold, <span class="math-container">$Q_{f,B}$</span> quantity acquired from the producer for free and <span class="math-container">$Q_{pir,B}$</span> quantity acquired through piracy. Denote <span class="math-container">$p_a$</span> the advertising revenue per copy.</p>
<p>Under the assumption that total desire for <span class="math-container">$x$</span> s fixed, we have</p>
<p><span class="math-container">$$\bar Q_x = Q_{p,A} + Q_{A,pir} = Q_{p,B} + Q_{f,B} + Q_{pir,B} \,.\tag{1}$$</span></p>
<p>To evaluate financially the two scenarios, note that production cost has been already incurred, so it is sunk and out of economic consideration.
Abstract from taxes and also from intermediaries. Then profits are:</p>
<p><span class="math-container">$$\pi_A = p_xQ_{p,A} - C_{pir} \tag{2}$$</span></p>
<p><span class="math-container">$$\pi_B = p_xQ_{p,B} + p_aQ_{f,B} \tag{3}$$</span></p>
<p>The purely <em>economic</em> argument for scenario A is that by fighting piracy <em>we force more consumers to buy the product</em>, than &quot;otherwise&quot;. But the &quot;otherwise&quot; in this argument <em>is not scenario <span class="math-container">$B$</span></em>: it is the &quot;we do not fight piracy but we also do not offer <span class="math-container">$x$</span> for free+ads&quot; alternative. But we do not care about this scenario here. Still, let's accept the possibility that under scenario <span class="math-container">$B$</span>, perhaps some consumers that under Scenario A would have paid for <span class="math-container">$x$</span>, now they opt to acquire it for free and suffer through the advertisements. So let's accept for this reason, that</p>
<p><span class="math-container">$$Q_{p,B} \leq Q_{p,A}. $$</span></p>
<p>To go for scenario <span class="math-container">$B$</span> we want</p>
<p><span class="math-container">$$\pi_B &gt; \pi_A \implies p_xQ_{p,B} + p_aQ_{f,B} &gt;  p_xQ_{p,A} - C_{pir} $$</span></p>
<p><span class="math-container">$$\implies C_{pir} + p_aQ_{f,B} &gt; p_x[Q_{p,A} - Q_{p,B}] \tag{4}$$</span></p>
<p>Condition <span class="math-container">$(4)$</span> gives us the factors that we should quantify and estimate:</p>
<ol>
<li>How much fighting piracy costs?</li>
<li>How large will be the reduction in quantity sold when it is offered side-by-side with the option &quot;free+ads&quot;?</li>
<li>What kind of revenue from ads can we expect to have?</li>
</ol>
<p>Note that if fighting piracy costs a lot, and if the reduction in quantity sold is not expected to be large, then it may be the case that even a modest advertising revenue would be enough to make Scenario <span class="math-container">$B$</span> more profitable.</p>
<p>But question 3) also reveals that the picture painted above is for those artists whose popularity can more or less guarantee that advertisers will be willing to pay in order to be advertised next to their creations.</p>
<p>But even for them, we should not underestimate the ethical push-back (however hypocritical it may appear), for linking, actually <em>bundling</em>, advertisement and art (even fully commercialized art) so closely. Even consumers may be repelled by it, which may put the fame, <em>and so also the commercial brand</em>, of the artist in serious jeopardy.</p>
<p>And in fact, it is my suspicion that this is one of the main reasons why the scheme contemplated by the OP has not become the norm, at least not yet: businesses believe that consumers don't want to feel that their art consumption is so much like any other consumption (because, hey, it isn't). Assuming that this is the case, is this irrational from the part of consumers? <em><strong>No.</strong></em> What goes into my utility function and increases/decreases my utility is the last shelter of individual choice. Rationality comes <em>after</em> that.</p>

CC BY-SA 4.0
2020-08-13T21:52:58.367Z
Thanks Alecos Papadopoulos! I didn't really full analyse the maths yet, but for the non-maths parts...
BCLC
CC BY-SA 4.0
2020-08-13T21:54:17.957Z
Follow-up 1: About the penultimate paragraph ('But even for them, we should not underestimate the ethical push-back...'), wait, are you saying consumers might not want ads? If not, then what do you mean? Follow-up 2: If so, then why can't they have the option to pay for ad-free?
BCLC
CC BY-SA 4.0
2020-08-13T21:55:43.800Z
Follow-ups 3 and 4: About the last paragraph, you say 'businesses believe that consumers don't want to feel that their art consumption is so much like any other consumption' : Follow-up 3: What exactly do you mean by this? Follow-up 4: And where does this fit in the condition (4)?
BCLC
CC BY-SA 4.0
2020-08-14T00:47:06.673Z
@BCLC 1) Yes consumers might not want ads especially related to art products. 2) Even if they have the option to pay for ad-free, they may be turned off to see their cherished art products being so blatantly commercialized. 3) The meaning is the same as in 2). 4) That demand may be significantly reduced overall, if such commercialization blemishes the artistic credentials of the creator.
Alecos Papadopoulos
CC BY-SA 4.0
2020-08-14T03:39:22.057Z
thanks! 'they may be turned off to see their cherished art products being so blatantly commercialized' --> ok what does this mean then? what's commercialised about an ad-free purchase? i don't really get it. please give an example maybe?
BCLC
CC BY-SA 4.0
2020-08-14T03:45:47.473Z
i mean, i'm just thinking say like thepiratebay. it has ads, and they make money from ads. i imagine if netflix or whatever became like an official version of thepiratebay (IN ADDITION to its original format): it would get revenue from ads and stuff. i mean, people are already torrenting and stuff anyway, so i really don't see what the film or music industry has to lose. the ad revenue TPB is getting could be what netflix or whatever gets.
BCLC
CC BY-SA 4.0
2020-08-14T03:49:00.847Z
music in particular [is kinda free already](https://law.stackexchange.com/questions/1648/is-downloading-youtube-videos-legal). i mean certainly the RIAA must know how easy it is to download from youtube. it's like home taping (except betamax won while grokster lost). i really don't see any benefit RIAA or the music industry had from suing tenenbaum or thomas-rasset
BCLC
CC BY-SA 4.0
2020-08-14T10:09:52.777Z
@BCLC You are ignoring the "framing effect": even if I have the option to pay and get ad-free, it bothers me to see that the same product is offered for free but bundled with ads. As regards ads, we are not talking about ads placed in general on a website. We are talking about ads bundled with the product: being  obliged to see an ad while downloading ads inserted in the beginning and end of a song, ads inserted in the middle of movies, ads insertedd as extra pages in an e-book... this is the kind and volume of ads that would bring in serious ad revenues.
Alecos Papadopoulos
CC BY-SA 4.0
2020-08-16T09:05:23.180Z
thanks! 5 - i just looked up framing effect on wikipedia. how is framing effect relevant here please? 6 - re 'even if I have the option to pay and get ad-free, it bothers me to see that the same product is offered for free but bundled with ads' --> why exactly would this bother you? i mean what do you care?
BCLC
CC BY-SA 4.0
2020-08-17T14:33:17.133Z
Seems like we're discussing scenarios that already exist in reality: for music, Spotify provides a 'free' version supported by adverts. These are not controlled by the artist but, in this case, the distributor. The consumer chooses whether to listen to ad-free music by paying for Spotify, or suffer the ads in return for free music. Presumably, Spotify have done the maths on their ad revenue covering the licensing cost to make this viable, since they must still pay for the music in cases where the consumer uses the free version.
Will Appleby
CC BY-SA 4.0
2020-08-20T04:48:52.140Z
Eh might as well give you the bounty
BCLC
CC BY-SA 4.0
2020-09-22T01:05:08.177Z
added 400 bounty
BCLC
CC BY-SA 4.0
2020-08-13T17:52:15.907Z
2021-11-08T11:40:26.090Z
2021-11-08T11:40:26.090Z
Alecos Papadopoulos
<p>The simple answer is that they don't think they would make as much money.</p>
<p>In many countries illegally downloading music or movies is getting harder and harder. The recording industry has achieved this by  persuading governments to instruct the ISPs to block torrent sites, torrent proxy sites and sites that list proxy sites completely so no one can access them.</p>
<p>Also, a lot of people who legally download music/movies do it more because of the convenience despite the financial disadvantage. If you own an iphone or ipad, for example, it is much simpler to download what you want from itunes or subscribe to netflix than to find a way to get it illegally.</p>
<p>Finally, your example of cable companies also seems a little odd as you always pay a subscription fee as well as having to watch the ads.</p>

CC BY-SA 4.0
2020-08-11T02:45:47.243Z
Added bounty btw. Didn't think to mention earlier.
BCLC
CC BY-SA 4.0
2020-08-12T21:26:59.693Z
Added another bounty just now.
BCLC
CC BY-SA 4.0
2020-08-16T09:06:12.890Z
Do you agree with Alecos Papadopoulos?
BCLC
CC BY-SA 4.0
2020-09-16T13:34:14.957Z
added 400 bounty
BCLC
CC BY-SA 4.0
2020-09-24T03:43:07.190Z
felipa, did you perhaps mean like either of the ff?

1 - Also, a lot of people who illegally download music/movies do it more because of the convenience than the financial advantage. Conversely, a lot of people who legally download do it for convenience despite the financial disadvantage. If you own an iphone or ipad, for example, it is much simpler to download what you want from itunes or subscribe to netflix than to find a way to get it illegally.
BCLC
CC BY-SA 4.0
2020-09-24T03:43:16.000Z
2 - Also, a lot of people who legally download music/movies do it more because of the convenience despite the financial disadvantage. If you own an iphone or ipad, for example, it is much simpler to download what you want from itunes or subscribe to netflix than to find a way to get it illegally.
BCLC
CC BY-SA 4.0
2022-11-25T20:08:24.653Z
so you really mean legally not illegally right?
BCLC
CC BY-SA 3.0
2015-07-01T09:17:58.787Z
Thanks felipa! 1 'In many countries' --> Such as? 2 'people who illegally download' --> You mean legally? 3 'your example of cable companies also seems a little odd as you always pay a subscription fee' --> But no one pays for each movie or series that they watch. Consider the cost of purchasing movies or series episodes vs the subscription fee.
BCLC
CC BY-SA 3.0
2015-07-01T09:21:36.757Z
@BCLC such as Germany, see
https://torrentfreak.com/lawyers-sent-109000-piracy-threats-in-germany-during-2013-140304/
Giskard
CC BY-SA 3.0
2015-07-01T09:22:25.527Z
@BCLC  28 countries listed at https://en.wikipedia.org/wiki/Countries_blocking_access_to_The_Pirate_Bay .
Simd
CC BY-SA 3.0
2015-07-01T09:22:39.213Z
@denesp Thanks for the link. Just to clarify, you disagree with 'Copyright is unenforceable in a digital world. Period. Exclamation point.' ?
BCLC
CC BY-SA 3.0
2015-07-01T09:23:01.130Z
@BCLC 2. I mean "illegally". The point is that they can often easily be persuaded to move to legal means by making the legal means more convenient. For example  by itunes, netflix etc.
Simd
CC BY-SA 3.0
2015-07-01T09:23:24.907Z
@felipa Thanks for the link. Just to clarify, you disagree with 'Copyright is unenforceable in a digital world. Period. Exclamation point.' ?
BCLC
CC BY-SA 3.0
2015-07-01T09:25:59.723Z
@felipa '2. I mean "illegally".' --> Ah. Got it. Thanks for the info, but what exactly is the relevance? You mean that given Apple's copyright enforcing ways, Apple consumers will have difficulty pirating and thus the RIAA, for instance, has basis to believe it will make money if it continues SLAPPs?
BCLC
CC BY-SA 3.0
2015-07-01T09:27:17.047Z
@BCLC The relevance is that the recording industry is not obviously losing the piracy battle.  The basis of the OP's question is that they are.
Simd
CC BY-SA 3.0
2015-07-01T09:29:22.263Z
@BCLC "But no one pays for each movie or series that they watch." This is also wrong. There are plenty of online movie rental services.
Simd
CC BY-SA 3.0
2015-07-06T08:28:16.040Z
@KennyLJ Even from an iphone/ipad ?
Simd
CC BY-SA 3.0
2015-07-12T12:57:29.567Z
@felipa Your mentioning of Apple makes a lot of sense, but what about jailbreak? I have a feeling this is because the average Apple user is not so [technoliterate](http://www.rumoresapple.com/wp-content/uploads/2010/11/iphone2.jpg).
BCLC
CC BY-SA 3.0
2015-07-12T20:44:17.377Z
@felipa Actually, why does blocking TPB make it harder to torrent? They'll likely just go to kickass, isohunt or whatever is out there (Wait, am I allowed to mention things like those? lol) or use proxies. So yeah, the RIAA and MPAA **do** think they can stop file sharing?
BCLC
CC BY-SA 3.0
2015-07-12T20:47:25.567Z
@felipa 'There are plenty of online movie rental services.' --> I think you misunderstood me. I am sorry if I was unclear. What I meant was that in cable, no one pays for each *individual* movie or series. They pay for the subscription. This is a big difference. The subscription fee per month is considerably less compared to the cost of buying each episode or movie watched on, say, iTunes...I think. :P
BCLC
CC BY-SA 3.0
2015-07-13T13:12:32.643Z
@BCLC OK but that's not even universally true. See https://en.wikipedia.org/wiki/Pay-per-view for example.
Simd
CC BY-SA 3.0
2015-07-14T17:06:41.593Z
@felipa More impt issue: Again, what about jailbreak? / Less impt issue: As for PPV, okay fine whatever, but bottom line is that cable TV is pretty much free relative to actual payment for all the movies or tv series one could potentially watch, tape, rewatch, etc, right?
BCLC
CC BY-SA 3.0
2015-07-14T17:09:26.437Z
@KennyLJ Can you/can you not download from Netflix? What a hassle if you can't. So many things could go wrong: computer battery goes insane, computer screen doesn't work, internet connection cuts off or is poor.
BCLC
CC BY-SA 4.0
2015-07-01T09:13:56.103Z
2020-09-24T08:03:04.257Z
2020-09-24T08:03:04.257Z
Simd
<p>Firstly there are services like this in Spotify, and even radio and tv, but it sounds like you are talking about downloading the material with ads in.</p>

<p>That causes a problem. Revenue from ads relies on giving many ads to many people.  Each time you listen to a song the provider needs to be able to provide a new ad. If you download a song or book with ads then those ads are fixed.  So you might listen to it 100 times but no advertiser will pay 100x as much because it is not valuable to give the same ad to the same person many times.</p>

<p>Secondly you would need some added security on the files to make it hard to simply remove the ads. That is easily as difficult and expensive as DRM anyway.</p>

<p>The third problem is ads are annoying.  I think for many people an ad would be more incentive to pirate than a small cost. Early music DRM eventually failed (in part) because it was to motivate piracy in itself. Xkcd had a nice comic on that idea.</p>

<p>And that leads to the forth point.  Much of economics is about equilibria and long run expectation. In reality everything takes time and big bold change is even harder to start. Initially music was DRM protected but they eventually realised most people will pay 99c to avoid the hassle of piracy, but will pirate to avoid DRM  Nothing changed in the economics, it just took time for the industry to realise that was a better way yo do things. There may well be a book publisher out there working on an ad supported eReader library, but it will take time. </p>

<p>To put the price of a song in context:</p>

<p>The US median hourly wage is \$17.09<sup><a href="http://www.bls.gov/oes/current/oes_nat.htm" rel="nofollow">1</a></sup>, the median song length of the top 100 iTunes songs is 223 seconds<sup><a href="http://www.statcrunch.com/5.0/viewreport.php?reportid=28647&amp;groupid=948" rel="nofollow">2</a></sup>.  So 50% of US workers earn \$1.06 in the time it takes to play a song.</p>

CC BY-SA 4.0
2020-08-11T02:45:50.290Z
Added bounty btw. Didn't think to mention earlier.
BCLC
CC BY-SA 4.0
2020-08-12T21:27:03.517Z
Added another bounty just now.
BCLC
CC BY-SA 4.0
2020-08-16T09:06:18.313Z
Do you agree with Alecos Papadopoulos?
BCLC
CC BY-SA 4.0
2020-09-16T13:34:47.593Z
added 400 bounty
BCLC
CC BY-SA 3.0
2015-07-02T08:36:54.963Z
I agree with the economics of your reasoning but it is worth pointing out that there were books in the 20th century with ads in them. These ad spaces can obviously not be resold. Here is a reference on NPR:
http://www.npr.org/templates/story/story.php?storyId=16804462
I don't think it gives much additional credibility to the story but I own such a book myself. In my book the ad is not annoying because you can just turn the page. Also it is on old school ad with a lot of design and obviously no flashing.
Giskard
CC BY-SA 3.0
2015-07-02T08:47:27.650Z
@denesp fantastic observation!  That's really interesting, especially the bit about Dr Spock books starting it - those would have been ads that were really well targeted and so command a very high price (baby products in a Dr Spock book would be presumed to have a massive "click through rate").  Worth noting, however, that the books still had to be bought, so the adds didn't cover the full costs.  My point (which I know you weren't disagreeing with) is not that an advertiser would pay, but that the revenue is much less than in streaming services.
Corvus
CC BY-SA 3.0
2015-07-12T12:46:05.547Z
1, 2, 3 I am not thinking ads be included in the files. Likely someone will crack (or w/e is the term) those files to remove the ads from them and then people will just go to those torrent sites. I am thinking ads only when people go to the site to download kind of like YouTube. 4 'most people will pay 99c to avoid the hassle of piracy' --> MOST? in some parts of the world 99c is one meal. If you mean Apple, people can always jailbreak 5 lol https://xkcd.com/488/
BCLC
CC BY-SA 3.0
2015-07-12T12:52:46.490Z
4 cont So in short you're saying songs, movies and books aren't given away music free to download (accompanying ads in the download site similar to TPB in the sense that there is no practical difference between them) because 'most people will pay 99c to avoid the hassle of piracy' ? So like why? Why will most people do that?
BCLC
CC BY-SA 3.0
2015-07-13T11:06:59.657Z
@BCLC indeed for some 99c is a lot, but they are not likely to be useful to advertisers.  If you target audience has sufficient disposable income to attract advertisers then 99c is not a lot of money.
Corvus
CC BY-SA 3.0
2015-07-14T17:25:18.350Z
@Corone Ah so you mean 'most people' to be, say, 'most of RIAA's target audience' ? So RIAA is thinking 'Hey, most of our target audience uses apple, let's charge 99c', 'Hey, let's target apple users' or something like that?
BCLC
CC BY-SA 3.0
2015-07-02T07:51:24.813Z
2015-07-13T11:13:28.580Z
2015-07-13T11:13:28.580Z
Corvus
<p>Isn't this mostly an issue of pricing at a level where most people feel it's worth paying to avoid the hassle (and potential legal issues) of piracy?</p>

<p>Take music singles for example: when I was a teenager (late 90's), a CD single cost £3.99 in the UK. When it became possible to download songs for free that someone else had ripped and uploaded, many people started doing that. When iTunes came along and you could legitimately buy the same song for £0.99 (later £0.79 I believe - it may have gone up again since), I had no objection to paying that amount, and managing an iTunes library was all-round easier than random mp3 files on my HDD.</p>

<p>Nowadays I use Spotify, and £9.99 a month seems reasonable considering I stream music for 6+ hours a day at work. But I understand the industry is rallying against Spotify because they aren't getting enough royalties from it (boo hoo).</p>

<p>The issue I have today is that the same price correction has yet to happen for movies and eBooks which are, IMO, way too expensive in digital form. Take Kindle books for example, a new release can still cost £6 or £7 - the same price I could get the printed copy from my local superstore. How can they possibly justify charging the same amount when it simply cannot cost them as much for a digital copy as the printed media?</p>

<p>Movies are even worse: services like Google Play, Apple and Amazon charge (I believe) £5 - 7 to <strong>rent</strong> an HD movie for 48 hours. In a lot of cases I could buy a physical version of the same film from a shop for £10 that I can play as often as I like. A one-off digital consumption should be <em>significantly</em> cheaper than an unlimited-use physical version.</p>

<p>When movie studios and book publishers realise that their products no longer attract the same premiums they used to, and adjust prices accordingly, I think the number of people prepared to pirate will be pretty small, and limited to those people who will always take free over paid-for, even if there is effort/risk involved. If eBooks were £2-3, or movies £1.99 to rent for 24 hours, I'd probably pay that several times if I wanted to re-watch the film later.</p>

CC BY-SA 4.0
2018-07-31T12:57:58.310Z
Thanks Will Appleby! So to clarify your answer is that movies and books don't yet have an analogue of Spotify, and the reason is in your first sentence?
BCLC
CC BY-SA 4.0
2018-07-31T13:17:52.417Z
Indeed. My recollection isn't perfect but I am sure there was a fairly significant price correction in the music industry when digital music went mainstream (and later with Spotify). This hasn't happened with digital movies and books, or least hasn't gone far enough. Movie studios want to have their cake (inflated digital prices) and eat it (no piracy).
Will Appleby
CC BY-SA 4.0
2018-07-31T13:22:43.317Z
PLEASE INCLUDE LAST SENTENCE IN YOUR ANSWER. THAT IS THE MOST BRILLIANT EXPLANATION I'VE HEARD OF FILE SHARING, PIRACY, ETC IN THE LAST 8.5 YEARS THAT I'VE BEEN FOLLOWING THIS TOPIC (It all started with a topic paper in a university course in english. Lol)
BCLC
CC BY-SA 4.0
2018-07-31T13:24:41.497Z
Will Appleby, just curious, what brings you to Economics SE? Did you come here from Stack Overflow or when you were looking up piracy for codes or something?
BCLC
CC BY-SA 4.0
2018-07-31T14:31:54.027Z
I came from another SE site. I quite often read the "Hot Network Questions" down the sidebar and click through for interesting questions.
Will Appleby
CC BY-SA 4.0
2018-07-31T17:26:47.197Z
Will Appleby, this was on hot network recently?
BCLC
CC BY-SA 4.0
2020-06-13T20:25:57.690Z
wait actually perhaps half of your answer is not really answering the question? it sounds half of your answer is answering 'Why do people go to netflix instead of torrent?', a question focused on the consumers given the law and the companies' decisions. but then another half indeed answers 'Why aren't songs, movies or books given for free?', a question focused on the law and the companies' decisions given, well, 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'
BCLC
CC BY-SA 4.0
2020-08-11T02:46:20.070Z
Added bounty btw. Didn't think to mention earlier.
BCLC
CC BY-SA 4.0
2020-08-12T21:28:22.263Z
Added another bounty just now.
BCLC
CC BY-SA 4.0
2020-08-16T09:06:58.927Z
Do you agree with Alecos Papadopoulos?
BCLC
CC BY-SA 4.0
2020-09-16T13:34:44.927Z
added 400 bounty
BCLC
CC BY-SA 4.0
2022-01-15T13:37:00.383Z
"[...] it simply cannot cost them as much for a digital copy as the printed media [...]" - You may or may not be right about this, in this case, but in general it can be unwise to make assumptions like this.  There is a common misconception that digital products are somehow completely virtual and without cost to produce or maintain.  In fact, digital distribution services can be intensely complicated and massively expensive to run.  By contrast, printing 100,000 books is a fixed and limited unit of work and material, and the result is, for all intents and purposes, permanent.
bubbleking
CC BY-SA 4.0
2018-07-31T12:49:17.080Z
2018-07-31T12:49:17.080Z
Will Appleby
<p>I will only address e-books (and other text), and discuss the technical issues. These technical issues make e-books distinct from other electronic media.</p>
<p>An e-book is a compressed file that contains what are essentially web pages (each a “chapter”), with meta-data in XML. Typical size is small (a couple megabytes), with size possibly increasing due to images (the standard is 300 dpi, versus 90 for webpages).</p>
<p>They are often read on e-readers, which have small screens, and typically used not connected to the internet. (Download the file once on wifi, read on the bus.) Any ads have to be embedded into the file on download.</p>
<p>The problem is where would they go? Publishers and readers would explode in anger if content was mangled if ads were put in the middle of content - breaking formatting. You would need a special e-reader to allow for banners that are not connected to the book contents. (An app on a tablet could do this easily, but existing specialized e-readers are engineered to only display the existing file format.) Given the existing small screen size on most e-readers, readers will be unhappy with the reduction.</p>
<p>There are ads in books - typically for other books, at the beginning and end. They are skipped over by default by e-redears, and easily skipped.</p>
<p>The other issue is that books are often bought years after publication, and read much later. What advertiser has products they want to advertise that are not time-sensitive? The only common item is other books, which is why they already appear in books.</p>
<p>(Newspapers and magazines are read in a timely fashion, and are ad-supported. Typically not enough revenue to make them free.)</p>
<p>The only model that deals with the timeliness problem is the monthly “library rental” model. This model ensures that the e-book was in touch with the service servers in the past month. This model could allow for ads. However, the ads would be used to reduce the cost of the rental subscription, and the publishers would be paid on a usage basis (as those models do now).</p>
<p>The library rental service would need to solve the technical problems of selling ads, and would need readers willing to put up with them. I have not yet heard of any attempts to do so.</p>

CC BY-SA 4.0
2022-01-14T12:23:48.783Z
*"Typical size is small (a couple megabytes), with size possibly increasing due to images (the standard is 300 dpi, versus 90 for webpages)."* Most of the ebooks I have weigh less than 400kb. A whole megabyte is already "huge" for an ebook, and probably means it contains several images.
Stef
CC BY-SA 4.0
2020-09-18T17:38:41.273Z
2020-09-18T17:38:41.273Z
Brian Romanchuk
<p>This analysis also ignores non-dollar prices of piracy and the fact that pirated goods are not perfect substitutes for the legitimate good.</p>

<p>In the real world, consumers do not have perfect information and have to spend valuable time searching for pirated media and filtering through versions that no longer work, have no seeders, or are otherwise inadequate (terrible cams, virus laden, mislabelled, etc).</p>

<p>In addition, legitimate media may come with other features such as album artwork and proper metadata. Some consumers may care about this, and replacing this data incurs a cost.</p>

<p>Finally, legitimate goods can be more convenient and allow for immediate gratification. You need to discount the value of a pirated song a few hours from now versus a song right now. Legitimate media is backed by extensive distribution networks and can usually be accessed quickly and while away from a desk (e.g. downloading from Google Play/iTunes on your phone, or more recently streaming services like Spotify/Netflix)</p>

CC BY-SA 3.0
2015-11-23T14:10:13.997Z
You mean to say that convenience is a reason people prefer legitimate goods over pirated? I don't see how convenience is so expensive when more and more goods are demanded. Consider torrentding 100 movies vs paying for it. The time spent looking for torrents is certainly worth not having to pay for it.
BCLC
CC BY-SA 3.0
2015-11-23T22:03:01.870Z
While I can't quite say as much for music services, my experience with Netflix has been that yes, in fact, the convenience of it makes me strongly prefer that to pirating whenever possible. It doesn't take up space on my hard drive, it autoplays, it even makes suggestions. (vs. finding each episode individually, verifying that it's legitimate and of reasonable quality, etc.) It's worth it for me, and many people I know.
Cat'r'pillar
CC BY-SA 4.0
2020-06-13T20:24:13.117Z
wait actually perhaps you are not really answering the question? it sounds like you're answering 'Why do people go to netflix instead of torrent?', a question focused on the consumers given the law and the companies' decisions. however, my question is 'Why aren't songs, movies or books given for free?', a question focused on the law and the companies' decisions given, well, 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'
BCLC
CC BY-SA 4.0
2020-08-11T02:46:24.083Z
Added bounty btw. Didn't think to mention earlier.
BCLC
CC BY-SA 4.0
2020-08-12T21:28:26.217Z
Added another bounty just now.
BCLC
CC BY-SA 4.0
2020-08-16T09:07:00.597Z
Do you agree with Alecos Papadopoulos?
BCLC
CC BY-SA 4.0
2020-09-16T13:34:42.347Z
added 400 bounty
BCLC
CC BY-SA 3.0
2015-11-23T10:54:59.013Z
2015-11-23T10:54:59.013Z
jaggedcow
<ol>
<li><strong>Question</strong>: Why aren't songs, movies or ebooks given for free (+ads) like TV?</li>
</ol>
<ul>
<li><p>i. <strong>Sub-question</strong>: <strong>Every minute, people are pirating,</strong> <strong>and there is <a href="https://www.newyorker.com/culture/goings-on/download-this-interview" rel="nofollow noreferrer">no</a> stopping that.</strong> If people see 0.99 for a song on iTunes and 0.00 for a song on a torrent site, I don't see anything stopping majority of people from going to that torrent site in the same way I don't see anything stopping them from going to a library or asking a friend to <a href="https://youtu.be/bdvL3FBwHEc?t=239" rel="nofollow noreferrer">borrow a book instead of buying the book in Borders</a> or <a href="https://en.wikipedia.org/wiki/Home_Taping_Is_Killing_Music" rel="nofollow noreferrer">taping a song off the radio</a>. In particular, there's <a href="https://en.wikipedia.org/wiki/Sony_Corp._of_America_v._Universal_City_Studios,_Inc." rel="nofollow noreferrer">betamax. It was thought illegal until this case or something.</a></p>
</li>
<li><p>(Anyway that's about legality not economic benefit/loss. Also betamax is more like <a href="https://en.wikipedia.org/wiki/Positive_economics" rel="nofollow noreferrer">is or positive</a> rather than <a href="https://en.wikipedia.org/wiki/Normative_economics" rel="nofollow noreferrer">should or normative</a>, I guess.)</p>
</li>
<li><p><strong>So, why don't companies, like the RIAA or MPAA, release their songs, movies or ebooks for free but put in <a href="https://www.techdirt.com/articles/20100525/1040569564.shtml" rel="nofollow noreferrer">ads</a> kind of like how cable TV was/is done?</strong> In my opinion, companies incur a huge <a href="https://en.wikipedia.org/wiki/Opportunity_cost" rel="nofollow noreferrer"><strong>opportunity cost</strong></a></p>
<blockquote>
<p>eg '<a href="http://jakonrath.blogspot.hk/2010/05/piracy-again.html" rel="nofollow noreferrer">JK Rowling has lost millions of dollars, because she refused to let Harry Potter come out in ebook form. Newsflash: you can get ebooks of all the Potter books from pirate sites. She didn't cater to her fans, so her fans catered to themselves.</a>'.</p>
</blockquote>
</li>
<li><p>ii. <strong>Sub-question</strong>: <strong>What I guess is that they think they can actually stop piracy</strong> with things like DRM or scaring people into believing that they will be caught even though <a href="http://www.reddit.com/r/theydidthemath/comments/2n9ske/request_what_are_the_actual_odds_of_being_caught/cmbqwyh" rel="nofollow noreferrer">such is unlikely</a> so as to keep making <a href="https://youtu.be/usaOKXVErqc?t=217" rel="nofollow noreferrer">money</a> on iTunes, Netflix or whatever.</p>
</li>
<li><p>However, I read that in a <a href="https://en.wikipedia.org/wiki/Good_Copy_Bad_Copy" rel="nofollow noreferrer">documentary</a>, Chairman and CEO of the Motion Picture Association of America (MPAA) Glickman 'concedes that piracy will never be stopped, but states that they will try to make it as difficult and tedious as possible.'</p>
</li>
<li><p>So he ADMITS piracy cannot be stopped, which makes my <strong>guess wrong</strong>. <strong>So what, are the RIAA and MPAA actually <a href="http://www.investopedia.com/terms/r/rational-behavior.asp" rel="nofollow noreferrer">irrational</a>?</strong></p>
</li>
</ul>
<hr />
<ol start="2">
<li><strong>Question</strong>: What are some <strong>economic concepts or theories</strong> involved in file sharing/piracy besides opportunity cost and free rider problem?</li>
</ol>
<hr />
<p><strong>Notes</strong>:</p>
<ol>
<li><p>This can also <a href="https://en.wikipedia.org/wiki/Intellectual_property#Copyright" rel="nofollow noreferrer">extend</a> to games, apps, etc.</p>
</li>
<li><p>To clarify, I don't mean to ask why songs, movies and ebooks are not given ONLY for free. They should continue to be given for payment since there will still be demand. If people want to buy CDs, DVDs or ebooks, attend concerts or go to cinema before songs, movies and ebooks would be given free, they would likely not want to do less if ever songs, movies and ebooks would be given free, I think because it seems that if people like the cinema or concert experience, don't have Internet access or like smelling books, they will continue to purchase as much.</p>
</li>
<li><p>My question is not 'Why do people go to netflix instead of torrent?', a question focused on the consumers <em>given</em> the law and the companies' decisions. My question is instead 'Why aren't songs, movies or ebooks given for free?', a question focused <em>on</em> the law and the companies' decisions given, well:</p>
<blockquote>
<p><a href="https://cyberlaw.org.uk/2008/09/07/furious-author-cancels-pirated-book/" rel="nofollow noreferrer">Pirate Coelho's 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'</a></p>
</blockquote>
</li>
<li><p>Btw I just discovered <a href="https://en.wikipedia.org/wiki/Artificial_scarcity" rel="nofollow noreferrer">artificial scarcity</a>.</p>
</li>
</ol>

CC BY-SA 4.0
2020-08-09T04:30:57.773Z
@KennyLJ ok then is it irrational for them to keep going after people like joel tenenbaum and jammie thomas?
BCLC
CC BY-SA 4.0
2020-08-09T04:49:34.917Z
@KennyLJ Seriously? the nature of this question is specifically contending that it's different in the case of this kind of intellectual property because they could give it for free + ads instead. additionally, arguably, laws should not prevent me from borrowing/lending and so now with the internet, this should extend to torrents. My question is intended to be similar to betamax case, which i interpret to mean that it was irrational if the companies went after home tapers. Well I mean what did joel tenenbaum and jammie thomas achieve if it was so rational?
BCLC
CC BY-SA 4.0
2020-08-09T04:50:15.903Z
@KennyLJ would you like to post as answer?
BCLC
CC BY-SA 4.0
2020-08-11T02:48:23.013Z
@KennyLJ I mean there's not exactly an alternative for Walmart, but there could be for music, film, software, books, etc
BCLC
CC BY-SA 4.0
2020-08-17T04:15:18.243Z
@Giskard Do you agree with Alecos Papadopoulos?
BCLC
CC BY-SA 4.0
2020-08-17T05:12:36.933Z
@BCLC I dislike these "cold calls".
Giskard
CC BY-SA 4.0
2020-08-18T06:16:08.790Z
@Giskard 'Cold calling is the solicitation of business from potential customers who have had no prior contact with the salesperson conducting the call.' --> how have we had no prior contact? btw i set a bounty
BCLC
CC BY-SA 4.0
2020-08-18T06:16:19.260Z
@KennyLJ Do you agree with Alecos Papadopoulos? btw i set a bounty
BCLC
CC BY-SA 4.0
2020-08-18T06:16:36.213Z
@Ubiquitous Do you agree with Alecos Papadopoulos? btw i set a bounty
BCLC
CC BY-SA 4.0
2020-08-18T17:50:01.777Z
Downvoted because the answer is *really blatantly obvious*: they want some money?
Criticize SE actions means ban
CC BY-SA 4.0
2020-08-19T04:12:17.970Z
@user253751 So why aren't there more cases like joel tenenbaum and jammie thomas-rasset?
BCLC
CC BY-SA 4.0
2020-08-19T04:13:02.867Z
@user253751 Do you disagree with Jason Nichols? With Alecos Papadopoulos?
BCLC
CC BY-SA 4.0
2020-08-19T04:16:49.577Z
@user253751 Please provide an economic model that explains that they indeed earn more money in this case as opposed to the alternative case. Even if the answer is obvious, the proof may not be obvious....like idk Bolzano-Weierstrass maybe.
BCLC
CC BY-SA 4.0
2020-08-19T09:12:24.017Z
@user253751 I didn't say free. I said free + ads and option to pay for ad-free. TV is free. It's paid by commercials.
BCLC
CC BY-SA 4.0
2020-08-19T09:13:39.550Z
@user253751 What do you say to Will Appleby's comment? 'Seems like we're discussing scenarios that already exist in reality: for music, Spotify provides a 'free' version supported by adverts. These are not controlled by the artist but, in this case, the distributor. The consumer chooses whether to listen to ad-free music by paying for Spotify, or suffer the ads in return for free music. Presumably, Spotify have done the maths on their ad revenue covering the licensing cost to make this viable, since they must still pay for the music in cases where the consumer uses the free version.'
BCLC
CC BY-SA 4.0
2020-08-19T09:24:11.013Z
@BCLC Well, listening to ads is a form of payment. If you count Spotify with ads as free, then the answer to your question is "they do".
Criticize SE actions means ban
CC BY-SA 4.0
2020-08-19T10:59:35.763Z
@user253751 Wait did you just read the title which doesn't have the word 'ads' but not the body which does have the words 'ads' ? ok i'll edit title but if that's really the case, well.... come on...really?
BCLC
CC BY-SA 4.0
2020-08-19T11:42:34.800Z
Well then your answer is "they are"
Criticize SE actions means ban
CC BY-SA 4.0
2020-08-20T04:50:18.933Z
@user253751 so you mean a law has changed since joel tenenbaum or jammie thomas-rasset? what about ebooks or movies?
BCLC
CC BY-SA 4.0
2020-08-20T09:21:43.157Z
@BCLC Turn on your TV, there's your free content with ads.
Criticize SE actions means ban
CC BY-SA 4.0
2020-08-26T11:52:20.710Z
@user253751 again, so you mean a law has changed since joel tenenbaum or jammie thomas-rasset? what about ebooks or movies?
BCLC
CC BY-SA 4.0
2020-09-16T13:34:09.720Z
@user253751 added 400 bounty
BCLC
CC BY-SA 4.0
2020-09-17T16:48:03.290Z
I produce e-books. Technically, there’s no good way to bundle ads with e-books. People can read the book years in the future, and disconnected from the internet (after the initial download onto an e-reader). How is the ad placed, and what advertiser would pay for it? Newspapers/magazines have ads, but those publications are normally read soon after publication.  It’s only with the rise of ebook subscriptions (monthly borrowing model) that ad support might work.
Brian Romanchuk
CC BY-SA 4.0
2020-09-18T13:05:19.247Z
@BrianRomanchuk Do you perhaps mean PRACTICALLY there's no good way but TECHNICALLY there's a way? not sure i understood 'technically' there. thanks for commenting
BCLC
CC BY-SA 4.0
2020-09-18T13:07:15.990Z
@Ubiquitous spotify is free? i tried it out last week. it's subscription like netflix right? or not?
BCLC
CC BY-SA 4.0
2020-09-18T13:07:49.620Z
@user253751 spotify is free? i tried it out last week. it's subscription like netflix right? or not?
BCLC
CC BY-SA 4.0
2020-09-18T13:08:44.533Z
@BrianRomanchuk Ah, but what do you think of music or movies or series? I think it's pretty much less difficult for spotify and netflix to just become free but with ads or at least have free versions with ads kinda like youtube as compared to ebooks
BCLC
CC BY-SA 4.0
2020-09-18T17:02:47.170Z
1) since movies/music are typically streamed, easier  to work into advertising model. Books are one-time downloads, often a megabyte or so (depends on images). 2) If you look at books, they do contain ads - for other books, at the beginning/end. Other books are also not time-sensitive. There’s no market for other products. Advertisers want to advertise new products, not one that may have come out years earlier.
Brian Romanchuk
CC BY-SA 4.0
2020-09-19T22:44:39.760Z
@BrianRomanchuk Thanks for the info.
BCLC
CC BY-SA 4.0
2021-04-28T13:55:39.327Z
@user253751 hi I am commenting because your comment about this being blatantly obvious was marked as unfriendly and unkind. While you should definitely leave feedback to people who downvote please try to be more constructive and mention how the post can be improved instead of stating its obvious without elaboration
1muflon1
CC BY-SA 4.0
2021-05-01T09:48:09.580Z
this question is too broad, that goes against the SE rules, and some of the text like the edit is not even relevant to the question
csilvia
CC BY-SA 4.0
2021-05-01T11:01:57.807Z
@csilvia if it's against the se rules, then how come 1muflon1♦ commented on this 2 days ago instead of removing it. i mean how has this post been around for like 6 years? LOL. this must be such a huge guinness book of stackex records: longest duration of post against rules before post was removed
BCLC
CC BY-SA 4.0
2021-05-01T11:05:17.557Z
@BCLC the other user is right asking several questions in one is against the rules - see help center [here](https://economics.stackexchange.com/help/closed-questions). This is one rule that we do not enforce in draconian way so you may see sometimes such question on site but it is technically against rules of site and a valid reason to close Q. In addition, please be so kind and do not abuse flags. Flags are not supposed to be used for any comments you don't like but for those that actually violate CoC, rules of site or require moderator intervention for some other reason.
1muflon1
CC BY-SA 4.0
2021-05-01T11:09:56.360Z
@1muflon1 1 - oh ok. weird. i actually read the comment wrong. my bad. 2 - i didn't abuse flags imho because i said IF so and so then i flag this comment. if the condition doesn't hold, then i do not flag. so far, s.e. doesn't have a way to do 'conditional flagging' so i just did unconditional flagging stating my conditions
BCLC
CC BY-SA 4.0
2021-05-01T11:34:38.330Z
@BCLC I am really sorry but I can't see any reason why the comment would require flagging. If you are unclear on what the site rules are you could have checked help center, ask on meta, or politely ask that other user and wait for a response. This is not to say that you can only use flags when you are absolutely sure when something is wrong but I mean common, what in that comment above would require mod intervention? In addition, I did not meant to suggest you misused flag intentionally, just please dont be so 'jumpy', try to take feedback in good faith unless there is evidence to contrary
1muflon1
CC BY-SA 4.0
2021-05-01T11:35:04.477Z
@1muflon1 roger that.
BCLC
CC BY-SA 4.0
2021-05-01T20:22:45.983Z
After six years and several highly upvoted answers, why don't you accept one?  In fact, the three highly upvoted answers show that the question has probably been answered or is too broad. I have no problem with closing the question as an alternative.
Giskard
CC BY-SA 4.0
2021-11-07T21:01:16.747Z
I rolled back the last 2 edits note including unnecessary chatter unrelated to the question is against the rules of this site. See help center for details on our rules. Please, avoid doing this in the future.
1muflon1
CC BY-SA 4.0
2021-11-07T21:07:23.713Z
@Giskard i can still accept an answer even if question is closed right? or can't?
BCLC
CC BY-SA 4.0
2021-11-07T21:08:29.643Z
@Giskard eh just don't really wanna accept any because like...idk i still don't really get it. some answers i didn't read so thoroughly and some just aren't so complete. maybe the question cannot be fully answered. idk. but i did upvote the answers and stuff. also some of the answerers didn't respond to my follow ups in comments
BCLC
CC BY-SA 4.0
2021-11-07T21:14:55.480Z
@BCLC as giskard pointed out your question is too broad and hence it should likely get closed (originally the question seemed fine, but then instead of asking new questions it seems you were just forever expanding this one to the point that its too broad to be fully answerable). However, I do not want to use my mod vote for this given the question is already old anyway. Nonetheless, it would be decent of you to pick the answer you think best answers your question and accept given that such broad question anyway cant be fully answered in SE format
1muflon1
CC BY-SA 4.0
2021-11-07T21:17:38.827Z
@1muflon1  some of the answerers didn't respond to my follow ups in comments
BCLC
CC BY-SA 4.0
2021-11-07T21:22:50.833Z
@BCLC so? As long as they answer question, in the main question I don't see any reason not to accept one of them. In any case you do you, but this sort of behavior goes against the spirit of SE even though not accepting answer of course does not violate any rules it is matter of politeness if you are given high quality answer and you got already several ones. in any case do as you will as long as you dont break our rules, but maybe you should consider taking the tour of our site to better understand our model: https://economics.stackexchange.com/tour
1muflon1
CC BY-SA 4.0
2021-11-07T21:24:01.220Z
@1muflon1 'so? As long as they answer question' --> they didn't. that's why i'm asking follow-ups because i didn't get what they mean. they're of course not follow-ups for completely different questions. that wouldn't be fair. i should instead make a new post
BCLC
CC BY-SA 4.0
2021-11-22T17:53:58.437Z
Note questions are not supposed to be used have answers or unrelated comments from some external articles or blogs. Consequently last edits were rolled back. Please read our help center and take the tour of our page economics.stackexchange.com/tour to understand the model of SE. Please familiarize yourself with our rules. If you want to answer the question use answer. You can attempt to answer your own question, do not just edit that into the question
1muflon1
CC BY-SA 4.0
2021-11-24T04:39:52.027Z
@1muflon1 is it really that different from the other external articles or blogs i linked to?
BCLC
CC BY-SA 3.0
2015-07-01T09:09:21.313Z
Why does a restaurant/movie theater/football stadium charge money instead of putting in ads?
Giskard
CC BY-SA 3.0
2015-07-01T09:14:56.920Z
@denesp I assume you mean 'just putting' instead of just 'putting'. See Note 3.
BCLC
CC BY-SA 3.0
2015-07-01T09:17:36.830Z
Either I don't understand what you mean in Note 3 (this seems likely) or I don't understand why your Note does not answer your question.
Giskard
CC BY-SA 3.0
2015-07-01T09:21:37.763Z
@denesp Wait, sorry. Note 3 actually is not sufficient to answer. Let's take movie theatres for instance. IMHO, the MPAA can earn more if they charge for the cinematic experience and release the movie online as opposed to just releasing the movie online. People like going watching in the big screen. Next, restaurants. They can earn more if they charge for food instead of giving it away for free with ads. Football stadiums are similar to movie theatres, I think: Cinematic experience = watching live; watching HQ movie online for free (+ads) = streaming live (+ads).
BCLC
CC BY-SA 3.0
2015-07-01T09:22:36.120Z
"They can earn more if they charge for food instead of giving it away for free with ads." Yes, but why does this argument not hold everywhere?
Giskard
CC BY-SA 3.0
2015-07-01T09:29:22.093Z
@denesp Guess it's different for intellectual property? At what are you getting? Piracy cannot be stopped. Even if those countries blocked TPB, many people are still gonna do it. They'll use proxies or any of that other stuff, and they would rather google relentlessly on how to do it than pay for songs, books or music. It seems to me that the RIAA ought to embrace TPB to get ad revenue from all that traffic. Every cent TPB makes is a cent that they could instead make. So, it seems to me.
BCLC
CC BY-SA 3.0
2015-07-01T09:32:23.547Z
Okay, I believe I understand your question now. If I understand correctly you are saying that in your opinion in the case of digital content more profits could be made with advertisments than with sales. Then you ask whether this is true and if there is an economic theory or some research explaining it? If this is correct I think you should consider editing your question, removing some of the media quotes and speculative parts.
Giskard
CC BY-SA 3.0
2015-07-01T11:31:07.350Z
Music is given for free with ads on the a radio (or, more recently, services like Spotify). Movies and television shows are broadcast for free with ads on television and on demand streaming services.
Ubiquitous
CC BY-SA 3.0
2015-07-12T20:35:45.137Z
@denesp Not 'than with' but 'in addition to'
BCLC
CC BY-SA 3.0
2015-07-12T20:37:21.433Z
@Ubiquitous Also YouTube.
BCLC
CC BY-SA 3.0
2015-07-13T09:41:13.997Z
@denesp Why remove speculative? In Math SE, if there is no speculation, I will likely be asked what I have tried or thought
BCLC
<consumer-theory><consumption><opportunity-cost><free-riding><artificial-scarcity>
Piracy/File sharing - Why aren't songs, movies or ebooks given for free (+ads) like TV?
BCLC
# Piracy/File sharing - Why aren't songs, movies or ebooks given for free (+ads) like TV?

(Asked by: username_0 on 2015-07-01)

1. **Question**: Why aren't songs, movies or ebooks given for free (+ads) like TV?

* i. **Sub-question**: **Every minute, people are pirating,** **and there is [no](https://www.newyorker.com/culture/goings-on/download-this-interview) stopping that.** If people see 0.99 for a song on iTunes and 0.00 for a song on a torrent site, I don't see anything stopping majority of people from going to that torrent site in the same way I don't see anything stopping them from going to a library or asking a friend to [borrow a book instead of buying the book in Borders](https://youtu.be/bdvL3FBwHEc?t=239) or [taping a song off the radio](https://en.wikipedia.org/wiki/Home_Taping_Is_Killing_Music). In particular, there's [betamax. It was thought illegal until this case or something.](https://en.wikipedia.org/wiki/Sony_Corp._of_America_v._Universal_City_Studios,_Inc.)
* (Anyway that's about legality not economic benefit/loss. Also betamax is more like [is or positive](https://en.wikipedia.org/wiki/Positive_economics) rather than [should or normative](https://en.wikipedia.org/wiki/Normative_economics), I guess.)
* **So, why don't companies, like the RIAA or MPAA, release their songs, movies or ebooks for free but put in [ads](https://www.techdirt.com/articles/20100525/1040569564.shtml) kind of like how cable TV was/is done?** In my opinion, companies incur a huge [**opportunity cost**](https://en.wikipedia.org/wiki/Opportunity_cost)

  > eg '[JK Rowling has lost millions of dollars, because she refused to let Harry Potter come out in ebook form. Newsflash: you can get ebooks of all the Potter books from pirate sites. She didn't cater to her fans, so her fans catered to themselves.](http://jakonrath.blogspot.hk/2010/05/piracy-again.html)'.
* ii. **Sub-question**: **What I guess is that they think they can actually stop piracy** with things like DRM or scaring people into believing that they will be caught even though [such is unlikely](http://www.reddit.com/r/theydidthemath/comments/2n9ske/request_what_are_the_actual_odds_of_being_caught/cmbqwyh) so as to keep making [money](https://youtu.be/usaOKXVErqc?t=217) on iTunes, Netflix or whatever.
* However, I read that in a [documentary](https://en.wikipedia.org/wiki/Good_Copy_Bad_Copy), Chairman and CEO of the Motion Picture Association of America (MPAA) Glickman 'concedes that piracy will never be stopped, but states that they will try to make it as difficult and tedious as possible.'
* So he ADMITS piracy cannot be stopped, which makes my **guess wrong**. **So what, are the RIAA and MPAA actually [irrational](http://www.investopedia.com/terms/r/rational-behavior.asp)?**

---

2. **Question**: What are some **economic concepts or theories** involved in file sharing/piracy besides opportunity cost and free rider problem?

---

**Notes**:

1. This can also [extend](https://en.wikipedia.org/wiki/Intellectual_property#Copyright) to games, apps, etc.
2. To clarify, I don't mean to ask why songs, movies and ebooks are not given ONLY for free. They should continue to be given for payment since there will still be demand. If people want to buy CDs, DVDs or ebooks, attend concerts or go to cinema before songs, movies and ebooks would be given free, they would likely not want to do less if ever songs, movies and ebooks would be given free, I think because it seems that if people like the cinema or concert experience, don't have Internet access or like smelling books, they will continue to purchase as much.
3. My question is not 'Why do people go to netflix instead of torrent?', a question focused on the consumers *given* the law and the companies' decisions. My question is instead 'Why aren't songs, movies or ebooks given for free?', a question focused *on* the law and the companies' decisions given, well:

   > [Pirate Coelho's 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'](https://cyberlaw.org.uk/2008/09/07/furious-author-cancels-pirated-book/)
4. Btw I just discovered [artificial scarcity](https://en.wikipedia.org/wiki/Artificial_scarcity).

**Tags:** consumer-theory, consumption, opportunity-cost, free-riding, artificial-scarcity

> **Comments:**
> **username_1**: Why does a restaurant/movie theater/football stadium charge money instead of putting in ads?  
> **username_0**: @denesp I assume you mean 'just putting' instead of just 'putting'. See Note 3.  
> **username_1**: Either I don't understand what you mean in Note 3 (this seems likely) or I don't understand why your Note does not answer your question.  
> **username_0**: @denesp Wait, sorry. Note 3 actually is not sufficient to answer. Let's take movie theatres for instance. IMHO, the MPAA can earn more if they charge for the cinematic experience and release the movie online as opposed to just releasing the movie online. People like going watching in the big screen. Next, restaurants. They can earn more if they charge for food instead of giving it away for free with ads. Football stadiums are similar to movie theatres, I think: Cinematic experience = watching live; watching HQ movie online for free (+ads) = streaming live (+ads).  
> **username_1**: "They can earn more if they charge for food instead of giving it away for free with ads." Yes, but why does this argument not hold everywhere?  
> **username_0**: @denesp Guess it's different for intellectual property? At what are you getting? Piracy cannot be stopped. Even if those countries blocked TPB, many people are still gonna do it. They'll use proxies or any of that other stuff, and they would rather google relentlessly on how to do it than pay for songs, books or music. It seems to me that the RIAA ought to embrace TPB to get ad revenue from all that traffic. Every cent TPB makes is a cent that they could instead make. So, it seems to me.  
> **username_1**: Okay, I believe I understand your question now. If I understand correctly you are saying that in your opinion in the case of digital content more profits could be made with advertisments than with sales. Then you ask whether this is true and if there is an economic theory or some research explaining it? If this is correct I think you should consider editing your question, removing some of the media quotes and speculative parts.  
> **username_6**: Music is given for free with ads on the a radio (or, more recently, services like Spotify). Movies and television shows are broadcast for free with ads on television and on demand streaming services.  
> **username_0**: @denesp Not 'than with' but 'in addition to'  
> **username_0**: @username_6 Also YouTube.  
> **username_0**: @denesp Why remove speculative? In Math SE, if there is no speculation, I will likely be asked what I have tried or thought  
> **username_0**: @KennyLJ ok then is it irrational for them to keep going after people like joel tenenbaum and jammie thomas?  
> **username_0**: @KennyLJ Seriously? the nature of this question is specifically contending that it's different in the case of this kind of intellectual property because they could give it for free + ads instead. additionally, arguably, laws should not prevent me from borrowing/lending and so now with the internet, this should extend to torrents. My question is intended to be similar to betamax case, which i interpret to mean that it was irrational if the companies went after home tapers. Well I mean what did joel tenenbaum and jammie thomas achieve if it was so rational?  
> **username_0**: @KennyLJ would you like to post as answer?  
> **username_0**: @KennyLJ I mean there's not exactly an alternative for Walmart, but there could be for music, film, software, books, etc  
> **username_0**: @username_1 Do you agree with username_11?  
> **username_1**: @username_0 I dislike these "cold calls".  
> **username_0**: @username_1 'Cold calling is the solicitation of business from potential customers who have had no prior contact with the salesperson conducting the call.' --> how have we had no prior contact? btw i set a bounty  
> **username_0**: @KennyLJ Do you agree with username_11? btw i set a bounty  
> **username_0**: @username_6 Do you agree with username_11? btw i set a bounty  
> **username_2**: Downvoted because the answer is *really blatantly obvious*: they want some money?  
> **username_0**: @user253751 So why aren't there more cases like joel tenenbaum and jammie thomas-rasset?  
> **username_0**: @user253751 Do you disagree with username_7? With username_11?  
> **username_0**: @user253751 Please provide an economic model that explains that they indeed earn more money in this case as opposed to the alternative case. Even if the answer is obvious, the proof may not be obvious....like idk Bolzano-Weierstrass maybe.  
> **username_0**: @user253751 I didn't say free. I said free + ads and option to pay for ad-free. TV is free. It's paid by commercials.  
> **username_0**: @user253751 What do you say to username_12's comment? 'Seems like we're discussing scenarios that already exist in reality: for music, Spotify provides a 'free' version supported by adverts. These are not controlled by the artist but, in this case, the distributor. The consumer chooses whether to listen to ad-free music by paying for Spotify, or suffer the ads in return for free music. Presumably, Spotify have done the maths on their ad revenue covering the licensing cost to make this viable, since they must still pay for the music in cases where the consumer uses the free version.'  
> **username_2**: @username_0 Well, listening to ads is a form of payment. If you count Spotify with ads as free, then the answer to your question is "they do".  
> **username_0**: @user253751 Wait did you just read the title which doesn't have the word 'ads' but not the body which does have the words 'ads' ? ok i'll edit title but if that's really the case, well.... come on...really?  
> **username_2**: Well then your answer is "they are"  
> **username_0**: @user253751 so you mean a law has changed since joel tenenbaum or jammie thomas-rasset? what about ebooks or movies?  
> **username_2**: @username_0 Turn on your TV, there's your free content with ads.  
> **username_0**: @user253751 again, so you mean a law has changed since joel tenenbaum or jammie thomas-rasset? what about ebooks or movies?  
> **username_0**: @user253751 added 400 bounty  
> **username_3**: I produce e-books. Technically, there’s no good way to bundle ads with e-books. People can read the book years in the future, and disconnected from the internet (after the initial download onto an e-reader). How is the ad placed, and what advertiser would pay for it? Newspapers/magazines have ads, but those publications are normally read soon after publication.  It’s only with the rise of ebook subscriptions (monthly borrowing model) that ad support might work.  
> **username_0**: @BrianRomanchuk Do you perhaps mean PRACTICALLY there's no good way but TECHNICALLY there's a way? not sure i understood 'technically' there. thanks for commenting  
> **username_0**: @username_6 spotify is free? i tried it out last week. it's subscription like netflix right? or not?  
> **username_0**: @user253751 spotify is free? i tried it out last week. it's subscription like netflix right? or not?  
> **username_0**: @BrianRomanchuk Ah, but what do you think of music or movies or series? I think it's pretty much less difficult for spotify and netflix to just become free but with ads or at least have free versions with ads kinda like youtube as compared to ebooks  
> **username_3**: 1) since movies/music are typically streamed, easier  to work into advertising model. Books are one-time downloads, often a megabyte or so (depends on images). 2) If you look at books, they do contain ads - for other books, at the beginning/end. Other books are also not time-sensitive. There’s no market for other products. Advertisers want to advertise new products, not one that may have come out years earlier.  
> **username_0**: @BrianRomanchuk Thanks for the info.  
> **username_4**: @user253751 hi I am commenting because your comment about this being blatantly obvious was marked as unfriendly and unkind. While you should definitely leave feedback to people who downvote please try to be more constructive and mention how the post can be improved instead of stating its obvious without elaboration  
> **username_5**: this question is too broad, that goes against the SE rules, and some of the text like the edit is not even relevant to the question  
> **username_0**: @username_5 if it's against the se rules, then how come username_4♦ commented on this 2 days ago instead of removing it. i mean how has this post been around for like 6 years? LOL. this must be such a huge guinness book of stackex records: longest duration of post against rules before post was removed  
> **username_4**: @username_0 the other user is right asking several questions in one is against the rules - see help center [here](https://economics.stackexchange.com/help/closed-questions). This is one rule that we do not enforce in draconian way so you may see sometimes such question on site but it is technically against rules of site and a valid reason to close Q. In addition, please be so kind and do not abuse flags. Flags are not supposed to be used for any comments you don't like but for those that actually violate CoC, rules of site or require moderator intervention for some other reason.  
> **username_0**: @username_4 1 - oh ok. weird. i actually read the comment wrong. my bad. 2 - i didn't abuse flags imho because i said IF so and so then i flag this comment. if the condition doesn't hold, then i do not flag. so far, s.e. doesn't have a way to do 'conditional flagging' so i just did unconditional flagging stating my conditions  
> **username_4**: @username_0 I am really sorry but I can't see any reason why the comment would require flagging. If you are unclear on what the site rules are you could have checked help center, ask on meta, or politely ask that other user and wait for a response. This is not to say that you can only use flags when you are absolutely sure when something is wrong but I mean common, what in that comment above would require mod intervention? In addition, I did not meant to suggest you misused flag intentionally, just please dont be so 'jumpy', try to take feedback in good faith unless there is evidence to contrary  
> **username_0**: @username_4 roger that.  
> **username_1**: After six years and several highly upvoted answers, why don't you accept one?  In fact, the three highly upvoted answers show that the question has probably been answered or is too broad. I have no problem with closing the question as an alternative.  
> **username_4**: I rolled back the last 2 edits note including unnecessary chatter unrelated to the question is against the rules of this site. See help center for details on our rules. Please, avoid doing this in the future.  
> **username_0**: @username_1 i can still accept an answer even if question is closed right? or can't?  
> **username_0**: @username_1 eh just don't really wanna accept any because like...idk i still don't really get it. some answers i didn't read so thoroughly and some just aren't so complete. maybe the question cannot be fully answered. idk. but i did upvote the answers and stuff. also some of the answerers didn't respond to my follow ups in comments  
> **username_4**: @username_0 as giskard pointed out your question is too broad and hence it should likely get closed (originally the question seemed fine, but then instead of asking new questions it seems you were just forever expanding this one to the point that its too broad to be fully answerable). However, I do not want to use my mod vote for this given the question is already old anyway. Nonetheless, it would be decent of you to pick the answer you think best answers your question and accept given that such broad question anyway cant be fully answered in SE format  
> **username_0**: @username_4  some of the answerers didn't respond to my follow ups in comments  
> **username_4**: @username_0 so? As long as they answer question, in the main question I don't see any reason not to accept one of them. In any case you do you, but this sort of behavior goes against the spirit of SE even though not accepting answer of course does not violate any rules it is matter of politeness if you are given high quality answer and you got already several ones. in any case do as you will as long as you dont break our rules, but maybe you should consider taking the tour of our site to better understand our model: https://economics.stackexchange.com/tour  
> **username_0**: @username_4 'so? As long as they answer question' --> they didn't. that's why i'm asking follow-ups because i didn't get what they mean. they're of course not follow-ups for completely different questions. that wouldn't be fair. i should instead make a new post  
> **username_4**: Note questions are not supposed to be used have answers or unrelated comments from some external articles or blogs. Consequently last edits were rolled back. Please read our help center and take the tour of our page economics.stackexchange.com/tour to understand the model of SE. Please familiarize yourself with our rules. If you want to answer the question use answer. You can attempt to answer your own question, do not just edit that into the question  
> **username_0**: @username_4 is it really that different from the other external articles or blogs i linked to?  

---

## 7 answers

### Answer by username_7 on 2015-07-02. Score: 16

It's called a [Principal-Agent Conflict](https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem).

The RIAA/MPAA act as agents on behalf of the people who actually produce content (and consequently end-consumer value).

To maintain relevance to their principals', the RIAA/MPAA must signal value to them (i.e. claim loudly and repeatedly that they do something good for them [regardless of the validity of that claim]).

Firstly, this [signaling](https://en.wikipedia.org/wiki/Signalling_(economics)) is demonstrably an example of the Principal-Agent problem, in that it diverts resources away from actually advancing the principals' interests, but more so in that it creates a [perverse incentive](https://en.wikipedia.org/wiki/Perverse_incentive) for lobbying groups to fight [imaginary fires](http://www.gao.gov/products/GAO-10-423).

[The impact of piracy on the broad economy is believed to be near zero](http://freakonomics.com/2012/01/12/how-much-do-music-and-movie-piracy-really-hurt-the-u-s-economy/), so IP laws are effectively just [rent-seeking](https://en.wikipedia.org/wiki/Rent-seeking) [$^{[2]}$](https://web.archive.org/web/20170810080507/http://levine.sscnet.ucla.edu/papers/cr35.pdf) anyway.

Whether or not that particular type of rent-seeking is **always** a drain on the broad economy (in that it distorts markets producing [deadweight loss](https://en.wikipedia.org/wiki/Deadweight_loss) in excess of the [externalities](https://en.wikipedia.org/wiki/Externality) corrected) is up for discussion, though it is [known to be possible](http://eml.berkeley.edu/%7Eauerbach/ftp/ebot.pdf) (insofar as the existence of an optimal tax [or government induced market distortion] is necessarilyy proof of the existence of an excessive tax).

> **Comments:**
> **username_8**: Do you really believe that without a principal agent problem (without RIAA/MPAA), music and movies would be handed out for free over the internet?  
> **username_7**: I believe they would practice price discrimination better, and possibly release things for free eventually.  
> **username_7**: To clarify I mean something like the Hardcover/softcover paradigm, maybe releasing a high quality for some price, a regular quality for less, and finally at some later time a low quality for free.  
> **username_9**: I really like this answer. Quite well referenced as well. I do think @username_8 has a point. This can't possibly be the whole answer but I don't doubt it is at least a contributing factor.  
> **username_0**: Thanks for the answer containing 10 links. will read later.  
> **username_0**: username_7 1 so agents are like intermediaries? 2 What signal is sent? From who to whom? 3 What is the relationship between lobbyists (who I assume here are the RIAA/MPAA?) and principal-agent problem? The RIAA/MPAA does things contrary to content producers' interests and so...? 4 In what way are IP laws rent-seeking? Like [this](http://economics.stackexchange.com/questions/6573/what-are-the-economic-benefits-of-slapp-in-file-sharing-piracy) you mean?  
> **username_0**: 5 What exactly does the tax paper have to do with the RIAA/MPAA?  
> **username_10**: Evidence in support:  small indie labels have begun releasing their albums on vinyl bundled with a code to download the album, in effect practicing price discrimination.  Large record labels misinterpreted this as a simple resurgence of vinyl and are re-releasing older albums on vinyl.  
> **username_0**: Added bounty btw. Didn't think to mention earlier.  
> **username_0**: Added another bounty just now.  
> **username_0**: Do you agree with username_11?  
> **username_0**: added 400 bounty  

---

### Answer by username_11 on 2020-08-13. Score: 8

What I don't see here is an economic *model*, however rudimentary, that will allow us not to definitely answer the question but to clarify what are the critical issues. So here's one (totally rudimentary):

Consider a work of digitized and mass-commercialized content $x$, like a song, a movie, or a book. Assume that in the short run, demand (desire) for it is fixed (unknown but presumaby estimable by past experience), $Q\_T(x) = \bar Q\_x$.

The agent that can trade $x$ contemplates two options:

**Scenario $A$** : sell $x$ at price $p\_x$ and incur costs $C\_{pir} > 0$ to fight piracy.

**Scenario $B$** : offer $x$ for free subject to the consumer being exposed to advertising, while in parallel sell $x$ at the same price $p\_x$ free of any advertising. Assume that under scenario $B$, pirated copies will still be offered, touting that they are free of cost and free of advertisement also. But we do not fight piracy here.

For scenario $A$, denote $Q\_{p,A}$ quantity sold, $Q\_{pir,A}$ quantity acquired through piracy by the consumers.

For scenario $B$, denote $Q\_{p,B}$ quantity sold, $Q\_{f,B}$ quantity acquired from the producer for free and $Q\_{pir,B}$ quantity acquired through piracy. Denote $p\_a$ the advertising revenue per copy.

Under the assumption that total desire for $x$ s fixed, we have

$$\bar Q\_x = Q\_{p,A} + Q\_{A,pir} = Q\_{p,B} + Q\_{f,B} + Q\_{pir,B} \,.\tag{1}$$

To evaluate financially the two scenarios, note that production cost has been already incurred, so it is sunk and out of economic consideration.
Abstract from taxes and also from intermediaries. Then profits are:

$$\pi\_A = p\_xQ\_{p,A} - C\_{pir} \tag{2}$$

$$\pi\_B = p\_xQ\_{p,B} + p\_aQ\_{f,B} \tag{3}$$

The purely *economic* argument for scenario A is that by fighting piracy *we force more consumers to buy the product*, than "otherwise". But the "otherwise" in this argument *is not scenario $B$*: it is the "we do not fight piracy but we also do not offer $x$ for free+ads" alternative. But we do not care about this scenario here. Still, let's accept the possibility that under scenario $B$, perhaps some consumers that under Scenario A would have paid for $x$, now they opt to acquire it for free and suffer through the advertisements. So let's accept for this reason, that

$$Q\_{p,B} \leq Q\_{p,A}. $$

To go for scenario $B$ we want

$$\pi\_B > \pi\_A \implies p\_xQ\_{p,B} + p\_aQ\_{f,B} > p\_xQ\_{p,A} - C\_{pir} $$

$$\implies C\_{pir} + p\_aQ\_{f,B} > p\_x[Q\_{p,A} - Q\_{p,B}] \tag{4}$$

Condition $(4)$ gives us the factors that we should quantify and estimate:

1. How much fighting piracy costs?
2. How large will be the reduction in quantity sold when it is offered side-by-side with the option "free+ads"?
3. What kind of revenue from ads can we expect to have?

Note that if fighting piracy costs a lot, and if the reduction in quantity sold is not expected to be large, then it may be the case that even a modest advertising revenue would be enough to make Scenario $B$ more profitable.

But question 3) also reveals that the picture painted above is for those artists whose popularity can more or less guarantee that advertisers will be willing to pay in order to be advertised next to their creations.

But even for them, we should not underestimate the ethical push-back (however hypocritical it may appear), for linking, actually *bundling*, advertisement and art (even fully commercialized art) so closely. Even consumers may be repelled by it, which may put the fame, *and so also the commercial brand*, of the artist in serious jeopardy.

And in fact, it is my suspicion that this is one of the main reasons why the scheme contemplated by the OP has not become the norm, at least not yet: businesses believe that consumers don't want to feel that their art consumption is so much like any other consumption (because, hey, it isn't). Assuming that this is the case, is this irrational from the part of consumers? ***No.*** What goes into my utility function and increases/decreases my utility is the last shelter of individual choice. Rationality comes *after* that.

> **Comments:**
> **username_0**: Thanks username_11! I didn't really full analyse the maths yet, but for the non-maths parts...  
> **username_0**: Follow-up 1: About the penultimate paragraph ('But even for them, we should not underestimate the ethical push-back...'), wait, are you saying consumers might not want ads? If not, then what do you mean? Follow-up 2: If so, then why can't they have the option to pay for ad-free?  
> **username_0**: Follow-ups 3 and 4: About the last paragraph, you say 'businesses believe that consumers don't want to feel that their art consumption is so much like any other consumption' : Follow-up 3: What exactly do you mean by this? Follow-up 4: And where does this fit in the condition (4)?  
> **username_11**: @username_0 1) Yes consumers might not want ads especially related to art products. 2) Even if they have the option to pay for ad-free, they may be turned off to see their cherished art products being so blatantly commercialized. 3) The meaning is the same as in 2). 4) That demand may be significantly reduced overall, if such commercialization blemishes the artistic credentials of the creator.  
> **username_0**: thanks! 'they may be turned off to see their cherished art products being so blatantly commercialized' --> ok what does this mean then? what's commercialised about an ad-free purchase? i don't really get it. please give an example maybe?  
> **username_0**: i mean, i'm just thinking say like thepiratebay. it has ads, and they make money from ads. i imagine if netflix or whatever became like an official version of thepiratebay (IN ADDITION to its original format): it would get revenue from ads and stuff. i mean, people are already torrenting and stuff anyway, so i really don't see what the film or music industry has to lose. the ad revenue TPB is getting could be what netflix or whatever gets.  
> **username_0**: music in particular [is kinda free already](https://law.stackexchange.com/questions/1648/is-downloading-youtube-videos-legal). i mean certainly the RIAA must know how easy it is to download from youtube. it's like home taping (except betamax won while grokster lost). i really don't see any benefit RIAA or the music industry had from suing tenenbaum or thomas-rasset  
> **username_11**: @username_0 You are ignoring the "framing effect": even if I have the option to pay and get ad-free, it bothers me to see that the same product is offered for free but bundled with ads. As regards ads, we are not talking about ads placed in general on a website. We are talking about ads bundled with the product: being  obliged to see an ad while downloading ads inserted in the beginning and end of a song, ads inserted in the middle of movies, ads insertedd as extra pages in an e-book... this is the kind and volume of ads that would bring in serious ad revenues.  
> **username_0**: thanks! 5 - i just looked up framing effect on wikipedia. how is framing effect relevant here please? 6 - re 'even if I have the option to pay and get ad-free, it bothers me to see that the same product is offered for free but bundled with ads' --> why exactly would this bother you? i mean what do you care?  
> **username_12**: Seems like we're discussing scenarios that already exist in reality: for music, Spotify provides a 'free' version supported by adverts. These are not controlled by the artist but, in this case, the distributor. The consumer chooses whether to listen to ad-free music by paying for Spotify, or suffer the ads in return for free music. Presumably, Spotify have done the maths on their ad revenue covering the licensing cost to make this viable, since they must still pay for the music in cases where the consumer uses the free version.  
> **username_0**: Eh might as well give you the bounty  
> **username_0**: added 400 bounty  

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### Answer by username_13 on 2015-07-01. Score: 8

The simple answer is that they don't think they would make as much money.

In many countries illegally downloading music or movies is getting harder and harder. The recording industry has achieved this by persuading governments to instruct the ISPs to block torrent sites, torrent proxy sites and sites that list proxy sites completely so no one can access them.

Also, a lot of people who legally download music/movies do it more because of the convenience despite the financial disadvantage. If you own an iphone or ipad, for example, it is much simpler to download what you want from itunes or subscribe to netflix than to find a way to get it illegally.

Finally, your example of cable companies also seems a little odd as you always pay a subscription fee as well as having to watch the ads.

> **Comments:**
> **username_0**: Thanks felipa! 1 'In many countries' --> Such as? 2 'people who illegally download' --> You mean legally? 3 'your example of cable companies also seems a little odd as you always pay a subscription fee' --> But no one pays for each movie or series that they watch. Consider the cost of purchasing movies or series episodes vs the subscription fee.  
> **username_1**: @username_0 such as Germany, see https://torrentfreak.com/lawyers-sent-109000-piracy-threats-in-germany-during-2013-140304/  
> **username_13**: @username_0  28 countries listed at https://en.wikipedia.org/wiki/Countries_blocking_access_to_The_Pirate_Bay .  
> **username_0**: @denesp Thanks for the link. Just to clarify, you disagree with 'Copyright is unenforceable in a digital world. Period. Exclamation point.' ?  
> **username_13**: @username_0 2. I mean "illegally". The point is that they can often easily be persuaded to move to legal means by making the legal means more convenient. For example  by itunes, netflix etc.  
> **username_0**: @felipa Thanks for the link. Just to clarify, you disagree with 'Copyright is unenforceable in a digital world. Period. Exclamation point.' ?  
> **username_0**: @felipa '2. I mean "illegally".' --> Ah. Got it. Thanks for the info, but what exactly is the relevance? You mean that given Apple's copyright enforcing ways, Apple consumers will have difficulty pirating and thus the RIAA, for instance, has basis to believe it will make money if it continues SLAPPs?  
> **username_13**: @username_0 The relevance is that the recording industry is not obviously losing the piracy battle.  The basis of the OP's question is that they are.  
> **username_13**: @username_0 "But no one pays for each movie or series that they watch." This is also wrong. There are plenty of online movie rental services.  
> **username_13**: @KennyLJ Even from an iphone/ipad ?  
> **username_0**: @felipa Your mentioning of Apple makes a lot of sense, but what about jailbreak? I have a feeling this is because the average Apple user is not so [technoliterate](http://www.rumoresapple.com/wp-content/uploads/2010/11/iphone2.jpg).  
> **username_0**: @felipa Actually, why does blocking TPB make it harder to torrent? They'll likely just go to kickass, isohunt or whatever is out there (Wait, am I allowed to mention things like those? lol) or use proxies. So yeah, the RIAA and MPAA **do** think they can stop file sharing?  
> **username_0**: @felipa 'There are plenty of online movie rental services.' --> I think you misunderstood me. I am sorry if I was unclear. What I meant was that in cable, no one pays for each *individual* movie or series. They pay for the subscription. This is a big difference. The subscription fee per month is considerably less compared to the cost of buying each episode or movie watched on, say, iTunes...I think. :P  
> **username_13**: @username_0 OK but that's not even universally true. See https://en.wikipedia.org/wiki/Pay-per-view for example.  
> **username_0**: @felipa More impt issue: Again, what about jailbreak? / Less impt issue: As for PPV, okay fine whatever, but bottom line is that cable TV is pretty much free relative to actual payment for all the movies or tv series one could potentially watch, tape, rewatch, etc, right?  
> **username_0**: @KennyLJ Can you/can you not download from Netflix? What a hassle if you can't. So many things could go wrong: computer battery goes insane, computer screen doesn't work, internet connection cuts off or is poor.  
> **username_0**: Added bounty btw. Didn't think to mention earlier.  
> **username_0**: Added another bounty just now.  
> **username_0**: Do you agree with username_11?  
> **username_0**: added 400 bounty  
> **username_0**: felipa, did you perhaps mean like either of the ff?  1 - Also, a lot of people who illegally download music/movies do it more because of the convenience than the financial advantage. Conversely, a lot of people who legally download do it for convenience despite the financial disadvantage. If you own an iphone or ipad, for example, it is much simpler to download what you want from itunes or subscribe to netflix than to find a way to get it illegally.  
> **username_0**: 2 - Also, a lot of people who legally download music/movies do it more because of the convenience despite the financial disadvantage. If you own an iphone or ipad, for example, it is much simpler to download what you want from itunes or subscribe to netflix than to find a way to get it illegally.  
> **username_0**: so you really mean legally not illegally right?  

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### Answer by username_14 on 2015-07-02. Score: 4

Firstly there are services like this in Spotify, and even radio and tv, but it sounds like you are talking about downloading the material with ads in.

That causes a problem. Revenue from ads relies on giving many ads to many people. Each time you listen to a song the provider needs to be able to provide a new ad. If you download a song or book with ads then those ads are fixed. So you might listen to it 100 times but no advertiser will pay 100x as much because it is not valuable to give the same ad to the same person many times.

Secondly you would need some added security on the files to make it hard to simply remove the ads. That is easily as difficult and expensive as DRM anyway.

The third problem is ads are annoying. I think for many people an ad would be more incentive to pirate than a small cost. Early music DRM eventually failed (in part) because it was to motivate piracy in itself. Xkcd had a nice comic on that idea.

And that leads to the forth point. Much of economics is about equilibria and long run expectation. In reality everything takes time and big bold change is even harder to start. Initially music was DRM protected but they eventually realised most people will pay 99c to avoid the hassle of piracy, but will pirate to avoid DRM Nothing changed in the economics, it just took time for the industry to realise that was a better way yo do things. There may well be a book publisher out there working on an ad supported eReader library, but it will take time.

To put the price of a song in context:

The US median hourly wage is \$17.09[1](http://www.bls.gov/oes/current/oes_nat.htm), the median song length of the top 100 iTunes songs is 223 seconds[2](http://www.statcrunch.com/5.0/viewreport.php?reportid=28647&groupid=948). So 50% of US workers earn \$1.06 in the time it takes to play a song.

> **Comments:**
> **username_1**: I agree with the economics of your reasoning but it is worth pointing out that there were books in the 20th century with ads in them. These ad spaces can obviously not be resold. Here is a reference on NPR: http://www.npr.org/templates/story/story.php?storyId=16804462 I don't think it gives much additional credibility to the story but I own such a book myself. In my book the ad is not annoying because you can just turn the page. Also it is on old school ad with a lot of design and obviously no flashing.  
> **username_14**: @denesp fantastic observation!  That's really interesting, especially the bit about Dr Spock books starting it - those would have been ads that were really well targeted and so command a very high price (baby products in a Dr Spock book would be presumed to have a massive "click through rate").  Worth noting, however, that the books still had to be bought, so the adds didn't cover the full costs.  My point (which I know you weren't disagreeing with) is not that an advertiser would pay, but that the revenue is much less than in streaming services.  
> **username_0**: 1, 2, 3 I am not thinking ads be included in the files. Likely someone will crack (or w/e is the term) those files to remove the ads from them and then people will just go to those torrent sites. I am thinking ads only when people go to the site to download kind of like YouTube. 4 'most people will pay 99c to avoid the hassle of piracy' --> MOST? in some parts of the world 99c is one meal. If you mean Apple, people can always jailbreak 5 lol https://xkcd.com/488/  
> **username_0**: 4 cont So in short you're saying songs, movies and books aren't given away music free to download (accompanying ads in the download site similar to TPB in the sense that there is no practical difference between them) because 'most people will pay 99c to avoid the hassle of piracy' ? So like why? Why will most people do that?  
> **username_14**: @username_0 indeed for some 99c is a lot, but they are not likely to be useful to advertisers.  If you target audience has sufficient disposable income to attract advertisers then 99c is not a lot of money.  
> **username_0**: @Corone Ah so you mean 'most people' to be, say, 'most of RIAA's target audience' ? So RIAA is thinking 'Hey, most of our target audience uses apple, let's charge 99c', 'Hey, let's target apple users' or something like that?  
> **username_0**: Added bounty btw. Didn't think to mention earlier.  
> **username_0**: Added another bounty just now.  
> **username_0**: Do you agree with username_11?  
> **username_0**: added 400 bounty  

---

### Answer by username_12 on 2018-07-31. Score: 3

Isn't this mostly an issue of pricing at a level where most people feel it's worth paying to avoid the hassle (and potential legal issues) of piracy?

Take music singles for example: when I was a teenager (late 90's), a CD single cost £3.99 in the UK. When it became possible to download songs for free that someone else had ripped and uploaded, many people started doing that. When iTunes came along and you could legitimately buy the same song for £0.99 (later £0.79 I believe - it may have gone up again since), I had no objection to paying that amount, and managing an iTunes library was all-round easier than random mp3 files on my HDD.

Nowadays I use Spotify, and £9.99 a month seems reasonable considering I stream music for 6+ hours a day at work. But I understand the industry is rallying against Spotify because they aren't getting enough royalties from it (boo hoo).

The issue I have today is that the same price correction has yet to happen for movies and eBooks which are, IMO, way too expensive in digital form. Take Kindle books for example, a new release can still cost £6 or £7 - the same price I could get the printed copy from my local superstore. How can they possibly justify charging the same amount when it simply cannot cost them as much for a digital copy as the printed media?

Movies are even worse: services like Google Play, Apple and Amazon charge (I believe) £5 - 7 to **rent** an HD movie for 48 hours. In a lot of cases I could buy a physical version of the same film from a shop for £10 that I can play as often as I like. A one-off digital consumption should be *significantly* cheaper than an unlimited-use physical version.

When movie studios and book publishers realise that their products no longer attract the same premiums they used to, and adjust prices accordingly, I think the number of people prepared to pirate will be pretty small, and limited to those people who will always take free over paid-for, even if there is effort/risk involved. If eBooks were £2-3, or movies £1.99 to rent for 24 hours, I'd probably pay that several times if I wanted to re-watch the film later.

> **Comments:**
> **username_0**: Thanks username_12! So to clarify your answer is that movies and books don't yet have an analogue of Spotify, and the reason is in your first sentence?  
> **username_12**: Indeed. My recollection isn't perfect but I am sure there was a fairly significant price correction in the music industry when digital music went mainstream (and later with Spotify). This hasn't happened with digital movies and books, or least hasn't gone far enough. Movie studios want to have their cake (inflated digital prices) and eat it (no piracy).  
> **username_0**: PLEASE INCLUDE LAST SENTENCE IN YOUR ANSWER. THAT IS THE MOST BRILLIANT EXPLANATION I'VE HEARD OF FILE SHARING, PIRACY, ETC IN THE LAST 8.5 YEARS THAT I'VE BEEN FOLLOWING THIS TOPIC (It all started with a topic paper in a university course in english. Lol)  
> **username_0**: username_12, just curious, what brings you to Economics SE? Did you come here from Stack Overflow or when you were looking up piracy for codes or something?  
> **username_12**: I came from another SE site. I quite often read the "Hot Network Questions" down the sidebar and click through for interesting questions.  
> **username_0**: username_12, this was on hot network recently?  
> **username_0**: wait actually perhaps half of your answer is not really answering the question? it sounds half of your answer is answering 'Why do people go to netflix instead of torrent?', a question focused on the consumers given the law and the companies' decisions. but then another half indeed answers 'Why aren't songs, movies or books given for free?', a question focused on the law and the companies' decisions given, well, 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'  
> **username_0**: Added bounty btw. Didn't think to mention earlier.  
> **username_0**: Added another bounty just now.  
> **username_0**: Do you agree with username_11?  
> **username_0**: added 400 bounty  
> **username_15**: "[...] it simply cannot cost them as much for a digital copy as the printed media [...]" - You may or may not be right about this, in this case, but in general it can be unwise to make assumptions like this.  There is a common misconception that digital products are somehow completely virtual and without cost to produce or maintain.  In fact, digital distribution services can be intensely complicated and massively expensive to run.  By contrast, printing 100,000 books is a fixed and limited unit of work and material, and the result is, for all intents and purposes, permanent.  

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### Answer by username_3 on 2020-09-18. Score: 1

I will only address e-books (and other text), and discuss the technical issues. These technical issues make e-books distinct from other electronic media.

An e-book is a compressed file that contains what are essentially web pages (each a “chapter”), with meta-data in XML. Typical size is small (a couple megabytes), with size possibly increasing due to images (the standard is 300 dpi, versus 90 for webpages).

They are often read on e-readers, which have small screens, and typically used not connected to the internet. (Download the file once on wifi, read on the bus.) Any ads have to be embedded into the file on download.

The problem is where would they go? Publishers and readers would explode in anger if content was mangled if ads were put in the middle of content - breaking formatting. You would need a special e-reader to allow for banners that are not connected to the book contents. (An app on a tablet could do this easily, but existing specialized e-readers are engineered to only display the existing file format.) Given the existing small screen size on most e-readers, readers will be unhappy with the reduction.

There are ads in books - typically for other books, at the beginning and end. They are skipped over by default by e-redears, and easily skipped.

The other issue is that books are often bought years after publication, and read much later. What advertiser has products they want to advertise that are not time-sensitive? The only common item is other books, which is why they already appear in books.

(Newspapers and magazines are read in a timely fashion, and are ad-supported. Typically not enough revenue to make them free.)

The only model that deals with the timeliness problem is the monthly “library rental” model. This model ensures that the e-book was in touch with the service servers in the past month. This model could allow for ads. However, the ads would be used to reduce the cost of the rental subscription, and the publishers would be paid on a usage basis (as those models do now).

The library rental service would need to solve the technical problems of selling ads, and would need readers willing to put up with them. I have not yet heard of any attempts to do so.

> **Comments:**
> **username_16**: *"Typical size is small (a couple megabytes), with size possibly increasing due to images (the standard is 300 dpi, versus 90 for webpages)."* Most of the ebooks I have weigh less than 400kb. A whole megabyte is already "huge" for an ebook, and probably means it contains several images.  

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### Answer by username_17 on 2015-11-23. Score: 0

This analysis also ignores non-dollar prices of piracy and the fact that pirated goods are not perfect substitutes for the legitimate good.

In the real world, consumers do not have perfect information and have to spend valuable time searching for pirated media and filtering through versions that no longer work, have no seeders, or are otherwise inadequate (terrible cams, virus laden, mislabelled, etc).

In addition, legitimate media may come with other features such as album artwork and proper metadata. Some consumers may care about this, and replacing this data incurs a cost.

Finally, legitimate goods can be more convenient and allow for immediate gratification. You need to discount the value of a pirated song a few hours from now versus a song right now. Legitimate media is backed by extensive distribution networks and can usually be accessed quickly and while away from a desk (e.g. downloading from Google Play/iTunes on your phone, or more recently streaming services like Spotify/Netflix)

> **Comments:**
> **username_0**: You mean to say that convenience is a reason people prefer legitimate goods over pirated? I don't see how convenience is so expensive when more and more goods are demanded. Consider torrentding 100 movies vs paying for it. The time spent looking for torrents is certainly worth not having to pay for it.  
> **username_18**: While I can't quite say as much for music services, my experience with Netflix has been that yes, in fact, the convenience of it makes me strongly prefer that to pirating whenever possible. It doesn't take up space on my hard drive, it autoplays, it even makes suggestions. (vs. finding each episode individually, verifying that it's legitimate and of reasonable quality, etc.) It's worth it for me, and many people I know.  
> **username_0**: wait actually perhaps you are not really answering the question? it sounds like you're answering 'Why do people go to netflix instead of torrent?', a question focused on the consumers given the law and the companies' decisions. however, my question is 'Why aren't songs, movies or books given for free?', a question focused on the law and the companies' decisions given, well, 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'  
> **username_0**: Added bounty btw. Didn't think to mention earlier.  
> **username_0**: Added another bounty just now.  
> **username_0**: Do you agree with username_11?  
> **username_0**: added 400 bounty  

---

