1. Carl Shapiro Hal R. Varian
Differentiate your product  innovation
 Others copy your idea  Use IP to protect ur idea
Rights Management
Carl Shapiro
Hal R. Varian

2. Internet-One giant, out-of-control copying machine?
Copyright owners are ambivalent about the Internet: lower distribution cost (good), but illicit copies due to lowered reproduction cost (bad)
offliberty.com
YOUTUBE

3. Intellectual Property Law
Traditional protections by intellectual property law does not seem to work for the Internet.
“Intellectual property law cannot be patched, retrofitted, or expanded to contain digitized expression…” John Perry Barlow
Is he right? We think not. It happened before. Ex: Xerox, VCR(low reproduction cost), Radio (low distribution cost)

4. The Internet is not good for copyright owners?
The Internet makes rights management more difficult, but at the same time, it offers a fantastic opportunity. (ex: BTS Love Yourself)
Printing, VCR industries faced dire prediction that new reproduction tech will destroy the industry  never happened. Instead, they flourished.
Need to learn how digital tech affects the management of IP.  history lessons.

5. History lesson: Digi-tech changes Production and Distribution
Digital tech lowers (re)production costs
Digital tech lowers distribution costs
Examples
Tape recorder lowers production cost, but not distribution costs
AM radio broadcast lowers distribution costs, not reproduction costs
How about AM radio with tape recorder?
Digi-tech lowers both costs! How to respond?

6. Make Lower Distribution Costs Work for You – Give away your content to advertise
Information is an experience good Ex: Bookstore reading
Must give away some of your content in order to sell rest: Internet is a good way to offer free samples informercials
Problem: Shirts ≠ Image of shirts, Photo = Image of photo
Strategy#1: Give a way only part of your product. Can use product line/versioning
National Academy of Sciences Press
Easy to read, hard to print
MMORPG(Massive Multiplayer
Online Role Playing Game), 아이템 추가 구입 필요

7. Make Lower Distribution Costs Work for You - Demand for Repeat Views
Strategy#2: Give away all your content, but only once ex) Song on a radio vs. song on a CD
Music, books, video have different use patterns
Children
Barney: free videos to day-care centers:
Ms Leach sold 35million videos to parents
Disney: sued day-care centers
Adults. Good Morning Vietnam!

8. Make Lower Distribution Costs Work for You - Demand for Similar, but Not Identical Products
Strategy#3: Free samples direct customers back to you (software for evaluation)
Playboy : Same nudity but different models
McAfee Associates(free sample example):
Ex-Lockheed programmer: Shareware(free but ask for donation) Virus Software
$5 million in first year from donation
$7.7 billion market value by 2010 (Forbes)
Half of virus protection market

9. Make Lower Distribution Costs Work for You - Demand for Complementary Products
Strategy#4: Give away index and sell content (free organization, not-free content)
Wall Street Journal, New York Times, Elsevier, Economist give away index (pay to read more)
Strategy#5: Free content, organization/ index is what matters (free content, sell organization) – FB, Google (ads)
Farcast organizes information using droids.

10. Illicit Copying Problem due to the above strategies?
How to make revenues, if you give away your content free? Don’t worry too much.
Timely information is less susceptible to illicit copying ex) stock info, reading news paper in bathroom.
Negative feedback: the bigger you are, the easier to detect  natural limit on the size of for-profit, illegal copying

11. Make Lower Reproduction Costs Work for You- Old problems
Analog : quality decays.
ex) copy machine
Digital: quality remains perfectly the same
ex) CD writer to produce music CDs
Perfection isn’t as important as commonly thought ex) 2nd generation analog copy of music vs. 20th generation analog copy. Only 63% could differentiate even for pros.
Thus, digital copy is not a new problem. We learned to live with analog copies of documents, music, and video – we can learn to live with digital copies.

12. Historical Examples - Cheap production/distribution tech isn’t really that new
Middle Age Professors lecturing in the dark
making reproduction costly (middle aged profs in darkened room for PPT)
Photocopying machines were to kill the publishing businesses. Now publishers charge more for the content they produce
ex) Academic journals
Libraries were to kill publishing business too. (next)

13. Historical Examples (cont’d)
Rise of the Library: Circulating/lending/ rental libraries (이전에는 도서관이 책을 대여하지 않았음)
Only 80,000 readers in England in 18c
1741: Pamela, a tale of a young girl’s life
by 1850: 1000 libraries by 1840 and 5,000,000 readers
Video stores(YouTube): cheaper movies, more viewers. Video rental or free Youtube viewing as prelude to purchase  growing the market

14. Lesson
Vastly cheaper distribution may feel like a threat, but it offers great opportunity.
If theses are not new problems as mentioned, what strategies?  Mange rights through Terms & Conditions. (Next)

15. Choosing Terms and Conditions (to manage rights)
Revenue = price x quantity
More liberal terms and conditions for intellectual property right
Increases price (b/c increases consumer value)
But higher price decreases quantity sold
Maximize the value, not the protection

16. Simple Model to Max Value
Qc = amount consumed
Qs = amount sold
p(Qc) = price, assume zero (total) cost
Baseline case: max π = max [p(Qc) Qs-0]
Make T&C more liberal
a p(Qc) with a > 1 (increased consumer value increased price)
Qc = b Qs with 0< b < 1 (only fraction of sold is consumed. If Qc is fixed, b↑↔Qs↓; decrease in sales)
*b 판매량(Qs) 대비 실제 소비량(Qc) 비율

17. Analysis Max a p(Qc) Qs, Qs=Qc/b Max (a/b) p(Qc) Qc
Conclusion: if Qc the same, profits depend on a/b (=가격상승율/판매량 대비사용비율)
Granting consumers expanded rights (more value) increases price (a↑) but reduces sales (p ↑ Qs↓ b↑).
Depends on which increases faster.
a faster profit↑, b faster profit↓)

18. Demand Curve Analysis Price 20 10 Qs 5 10
Baseline: Profit=10*10= (click)
More liberal T&C
EX) a ↑  twice more WTP twice the price
demand curve rotates (click)
If same Qs=10, price?(click) profit? (click)=
But more liberal T&C increase b as well
b ↑ Qs ↓ (click) profit? =
The final demand curve for liberal T&C?(click)
 More liberal T&C did not decrease profit in this case. 20 10 Qs 5 10

19. Lesson from the Analysis
When choosing terms and conditions, recognize the basic trade-off: more liberal terms and conditions will tend to raise the value of your product to consumers (increase sales price) but may reduce the number of unit sold (decrease quantity sold).
Try to maximize the value of the property, not the protection

20. Transactions Costs - Tool for managing T&C of IPR
Transaction cost: money, time, labor, etc to make transaction possible ex) need to go to video rental to rent a video and return.
T-Cost influences on consumer value if high, P↑ and Qs↓
Site license (more liberal T&C, reduced T-Cost, P ↓ Qs ↑) if profit ↑, use site license, if not, individual license
Site licensing and other group pricing schemes are a valuable tool for managing terms and conditions: they economize on transaction costs for both the buyer and seller. (Who pays for T-cost?).

21. Lessons Two challenges: cheap production, cheap distribution
Cheap distribution: helps advertise by giving away samples
Cheap distribution: good for bitleggers, but their need to advertise helps control them

22. Lessons, continued
Copy protection that imposes (transaction) costs on users is vulnerable to competitive forces (b/c P↑  Qs↓)
Basic tradeoff in terms and conditions: more liberal terms make product more valuable but may reduce sales
Site licenses and other group pricing schemes are a valuable tool

23. John Perry Barlow
John Perry Barlow (born October 3, 1947) is an American poet, essayist, retired Wyoming cattle rancher, Republican political activist and former lyricist for the Grateful Dead. He is also known to be a cyberlibertarian and was one of the founding members of the Electronic Frontier Foundation
Libertarianism is a term adopted by a broad spectrum of political philosophies which advocate the maximization of individual liberty and the minimization or even abolition of the state