Category Archives: Business and Economy

The morality of termination rights

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Raustiala and Sprigman over at the New York Times Freakonomics blog take on the morality of copyright termination rights, “an obscure provision of U.S. copyright law…[that] allows songwriters and musicians to…take back from the record labels many thousands of songs they licensed 35 years ago”:

In general, if you decide to sell or perpetually license a piece of property, you can’t later take it back, no matter how much you might want to. So If I sell my house and two years later the city decides to build a lovely public park in my neighborhood, the value of my former house may rise substantially. But no one contends that I can take the house back, or that I’m due a bonus payment from the lucky buyer.  A deal is a deal.

So why the exception for copyright owners?

I have to start somewhere, so it might as well be here:  it’s disingenuous to invoke a home-sy (literally) analogy, show that it fails, and use that failure to “prove” your point.  Raustiala and Sprigman note that “in general,” residential homes are sold outright.  So what?  Equally “in general,” commercial property leases for retail outlets (e.g., stores in shopping center developments) explicitly vary rent payments based on sales (i.e., higher store sales this month/year = higher rent).  Both systems are unobjectionable, assuming one simple fact:  the parties know what kind of deal they are making at the time they make it.

Thus, Raustiala and Sprigman’s analysis falls apart right off the bat.  Termination rights are not a recent phenomenon that nobody knew anything about until a year ago.  Unlike, say, Congress’ decision to re-copyright works that had already fallen into the public domain, termination rights have clearly been a part of U.S. copyright law since 1976.  They may have been “an obscure provision” to the general public reading the Freakonomics blog, but they certainly weren’t obscure to artists and labels.  Raustiala and Sprigman’s characterization is like calling the infield fly rule “obscure”–and then implying that a bunch of MLB players should be out because they didn’t know it existed or how it worked.

They go on:

Think for a moment about the economic effect of the termination provision on the behavior of parties to copyright transactions. Because buyers can expect, on average, to make lower profits when the law contains the termination provision, they will offer less in the initial transaction. Thus, sellers will be more willing to accept less, because they know that if a work later proves valuable, they can terminate and demand some additional payment. So the most likely effect of the termination provision is to force deal prices down across the board….Put differently, the termination provision is a regressive tax.  And in that light, the “fairness” justification for the termination provision is less than overwhelming.

Even assuming this is true, the record labels’ supposed “offer [of] less in the initial transaction” has already happened–35 years ago.  Changing the rules at this point to favor the labels over artists would also seem to invoke its own set of fairness issues.  To put it mildly.

Housing, IP, and Disney

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A New York Times article from last week reports on the convergence of housing, intellectual property, and the Walt Disney Corporation in a recently built suburban home near Salt Lake City:

The sherbet-colored structure sits at the intersection of Meadowside Drive and Herriman Rose Boulevard here, but you don’t need directions to find it. Just look for the swarm of helium-filled balloons that the developer tied to the chimney of a house that has a gabled roof, scalloped siding and a garden hose neatly coiled next to the porch — all details taken from “Up,” the 2009 hit about an old man and his flying abode.

Developer Blair Bangerter duplicated Pixar’s Up house with as much fidelity as physical reality would allow.  And he got permission to do this from Disney!  As the article notes, getting such permission from Disney is highly unusual:

This is a company that once forced a Florida day care center to remove an unauthorized Minnie Mouse mural. More recently, Disney told a stonemason that carving Winnie the Pooh into a child’s gravestone would violate its copyright [though it later “reversed its ruling on that Winnie the Pooh tombstone after the news media reported the rejection”].

So how is a homebuilder in this Salt Lake City suburb getting away with selling a near-identical copy of the floating house in the Disney-Pixar film “Up”?

Although Disney declined to comment for the story, the article suggests several reasons:

  • The developer is the son of a former Utah governor.
  • The developer was able to convince Up‘s director, Pete Docter, to “personally intervened on behalf of the project.”
  • Disney “is trying to evaluate with more care the hundreds of requests it receives a month from people wanting to use its characters and imagery.”

Taking these suggested reasons at face value, it sounds like Mr. Bangerter obtained permission primarily because (a) he was well-connected and (b) Disney sensed a PR opportunity.  There are at least two ways of interpreting this:

  1. Bangerter and Disney saw a market opportunity and bargained to create value.  Most homes in the subdivision are priced around $300,000; the Up home is listed at $400,000.  Disney is often seen as an IP bully; it now looks a bit nicer.  Thus, a deal between Bangerter and Disney created almost $100k in new economic value for the developer and (possible) new goodwill towards Disney.
  2. IP is being used here to create an unnecessary monopoly rent to benefit the already well-connected.  It’s hard to see how Disney would suffer any economic loss if everyone were free to build Up houses–Disney is in the business of selling media and related merchandise, but generally not houses.  However, since everyone is presumably not free to build Up houses, Bangerter and Disney had to spend time and money hammering out an agreement.  As a result of their agreement, Bangerter (apparently) gets ~$100k more for the Up house than he gets for comparable houses in the subdivision, and Disney successfully pacifies a politically powerful developer.

Especially insofar as Disney only considers such deals with well-connected developers like Bangerter, the IP issues quickly blur into fairness issues.

C. Wright Mills influences movie about white-collar cubicles

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A new movie about white-collar cubicle workers is influenced by the work of sociologist C. Wright Mills:

In his 1951 book “White Collar,” the sociologist C. Wright Mills acknowledged the powerlessness of the white-collar worker while also understanding his importance within a larger context: “Yet it is to this white-collar world that one must look for much that is characteristic of twentieth-century existence … They carry, in a most revealing way, many of those psychological themes that characterize our epoch, and, in one way or another, every general theory of the main drift has had to take account of them.”…

Mills’s thinking was a major inspiration for the filmmaker Zaheed Mawani, who documents the resigned reality of the cubicle-coralled white-collar worker in his new film “Three Walls” (you can watch a clip here). Mawani’s film brings to the screen what numerous long-term studies have shown: that a lack of autonomy over one’s daily tasks leads to boredom (at best), utter despair and even increased mortality rates. Yet, time and again, proposed solutions ignore these deeper issues and focus instead (see last month’s column) on the furniture.

Mawani has used the cubicle to explore larger issues in the world of work. As he and I both discovered, passions run high around the most seemingly banal piece of furniture: it has its arch defenders, its resigned occupiers and its rigorously vocal critics. Mawani was interested in examining what the cubicle has come to represent, as he explained in an e-mail to me, “in terms of the shifting nature of white collar work: the lack of job security, increase in temporary workers, our detachment to work (the fact that we no longer stay in the same job for more than a few years and the ramifications of no longer having that employee-employer bond). It’s also about our relationship to technology, the lack of physicality in work.”

Is there really much more to say about the cubicle, a piece of office furniture that has received much criticism over the years? For many, the cubicle has come to represent a temporary space where workers are simply replaceable cogs in corporate machines that tend to benefit some wealthy owner somewhere else.

This discussion reminds me of the design firm IDEO which has been featured in a number of places for creating a different type of workplace: no walls, open desks, lots of toys, lots of collaborative space, and a lot of interaction between workers of different backgrounds in order to take advantage of everyone’s ideas. For an example of how they operate, I’ve had students watch this old ABC Nightline clip about how the company went about designing a new grocery cart. This sort of office seems to appeal to a younger generation and IDEO argues that it is much more effective. (Humorously, here is IDEO’s attempt to build “Dilbert’s Ultimate Cubicle.”)

The idea that office furniture can reveal deep-seated cultural themes is intriguing. I’m afraid to ask what someone might be able to see if they had time to observe my office…

A disconnect: having electric car chargers at Costco

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The story that Costco is getting rid of electric car chargers in their parking lots because of a lack of use could be taken in several directions. One could ask: doesn’t there need to be an infrastructure in place before electric car owners would go to Costco? But I think there is a more interesting question: are electric car users really the sort of people who would shop at Costco?

Costco is a big box store, plain and simple. They offer bulk goods at cheap prices. Their buildings are bland and surrounded by parking lots. Is this the sort of place that electric car users would go? Are there people who would shop at Costco but wouldn’t shop at Wal-Mart (and I assume there are quite a few)? From a broader perspective, the picking and choosing between the “righteousness” of certain big box stores (Wal-Mart versus Target versus Costco versus Sam’s Club versus Home Depot…) is odd: they all operate on similar principles though their particular implementation varies some. To shop at any of them is to encourage standardization and sprawl. This doesn’t really go with the electric car culture/vibe.

So where should electric car chargers be installed? A few retail options: Whole Foods and Trader Joe’s. I suspect these would get a lot more use.

From luxury item to throwaway good: cable TV

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Following up on Joel’s post from Wednesday, Figures from the last quarter suggest the cable TV industry continues to lose customers:

The phone companies kept adding subscribers in the second quarter, but Dish lost 135,000. DirecTV gained a small number, so combined, the U.S. satellite broadcasters lost subscribers in the quarter — a first for the industry…

Sanford Bernstein analyst Craig Moffett estimates that the subscription-TV industry, including the untallied cable companies, lost 380,000 subscribers in the quarter. That’s about one out of every 300 U.S. households, and more than twice the losses in the second quarter of last year. Ian Olgeirson at SNL Kagan puts the number even higher, at 425,000 to 450,000 lost subscribers.

The second quarter is always the year’s worst for cable and satellite companies, as students cancel service at the end of the spring semester. Last year, growth came back in the fourth quarter. But looking back over the past 12 months, the industry is still down, by Moffett’s estimate. That’s also a first.

The article goes on to mention a number of reasons for this: a bad economy so consumers are cutting back, younger people don’t see the necessity of cable, and there is a lot of content available through the Internet.

More interesting to me is the idea that cable TV is no longer the luxury good that it once was. Once the industry began in the 1970s and later consolidated, cable moved from being a rarity to being a necessity. As late as mid 2009, “11% of U.S. TV homes only have the capability to receive TV reception “over the air”.” Having cable simply became part of how Americans spend their disposable income. Cable became prism through which many Americans viewed the world. Certain channels arose, such as MTV which has been getting a lot of attention recently because of its 30th anniversary or ESPN which was the subject of an interesting book, and became part of the national consciousness. These channels, for better or worse, came to represent American culture and were exported around the world. I wonder if having cable at home signaled a middle-class lifestyle even if other traits don’t match this standing.

But now the world may have moved on. (At the same time, despite all the articles suggesting people stop paying for cable, bad economic times, and more competition, the drop in subscribers was only 0.2-0.3%.) How exactly will cable companies convince people that their product is a necessity, particularly among the younger generations? What will be the new narrative regarding cable that will push people to include this in their lives?

AP: “Cord cutting” is real

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Associated Press is reporting its analysis that, for the first time ever, both cable and satellite providers fell:

The U.S. subscription-TV industry first showed a small net loss of subscribers a year ago. This year, that trickle has turned into a stream….The phone companies [Verizon and AT&T] kept adding subscribers in the second quarter, but Dish lost 135,000. DirecTV gained a small number, so combined, the U.S. satellite broadcasters lost subscribers in the quarter — a first for the industry.

I guess cord cutting is more real than some would like to believe…

Ebooks looking for a class (action) of their own

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Ars Technica is reporting a new class action lawsuit in the ebook market:

The essence of the claim is that these publishers [HarperCollins, Hachette Book Group, Macmillan, Penguin Group Inc., and Simon & Schuster Inc.], in coordination with Apple, conspired to nix the low price e-books that Amazon launched in 2007.…

The accusation is that the publishers and Apple fixed prices via two means. First, the publishers embraced an "agency model" arrangement with Apple in which Apple would act as an agent for the publishers, accepting their pricing and simply taking a cut of the proceeds. (Compare this to a model where a company agrees to "buy" each e-book at a set price, but it can then offer those e-books at any price it chooses. Amazon, in fact, was widely believed to be taking a loss on many e-books in order to encourage adoption of e-readers like the Kindle and e-books at the $9.99 price.)

Second, the publishers allegedly agreed not to sell books to any other online venue (like Amazon) at prices lower than those offered to Apple (a "most favored nation" agreement).

It’s far too early to tell whether the Hagens Berman litigation group will able to prove any of this.  Each publisher had the incentive to raise their own prices, and that’s not illegal.  The question thus becomes whether they colluded with Apple and/or the other publishers to do so.  Only time (and very expensive discovery) will tell…

The threat to iOS

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Ars Technica has a post about Apple’s latest response to a lawsuit filed by Lodsys, a reputed patent troll, against of Apple’s app developers:

Lodsys began threatening both iOS and Android developers with lawsuits in May if the developers didn’t pay licensing fees for its claimed in-app-purchasing-related patents. Many independent developers lack the financial and legal resources to litigate a patent infringement claim, so a number of iOS developers began a campaign to get Apple to help, threatening a boycott of in-app purchasing if only to avoid such legal threats.

Lodsys acquired its four patents from former Microsoft CTO Nathan Myhrvold’s Intellectual Ventures patent holding company. It turns out that Apple already has a license to those patents by virtue of an investment deal in Intellectual Ventures. That deal gave Apple (among other companies, including Google) a license to some 30,000 or so patents under Intellectual Ventures’ control.

(In case you missed it, this is the same Intellectual Ventures that was the subject of a recent This American Life episode, which has sparked—to put it mildly—quite a discussion around the blogosphere.)

If Apple isn’t successful in defending its developers here, the whole iOS app ecosystem may be in jeopardy.  As innovative as Apple has been in creating and updating iOS devices—iPhone, iPod Touch, iPad—over the past few years, a lot of their success is due to non-Apple creativity.  There’s no way that Steve Jobs’ company could have created 425,000 apps over the past four years, and those apps are a (the?) main selling point for consumers purchasing iOS.

If Apple’s licenses with Lodsys/Intellectual Ventures don’t cover its developers and those developers can get sued one by one, two things will probable happen.  First, the largest/financially strongest developers will (like Apple itself) reluctantly pay off the patent trolls, surviving by ultimately passing the costs onto consumers.  Second, small developers will go out of business.

Third place lesson from Borders and Starbucks locations in NYC: they still need to bring in money

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The story that Borders is closing many locations (see earlier posts here, here, and here) is related to news that some Starbucks locations in New York City are going to cover up their electrical outlets to discourage people from staying too long:

Well, now some Starbucks in New York City are reportedly pulling the plug on that idea, actually covering up their electrical outlets to discourage squatters.

“Customers are asking (for it). They just purchased a latte and a pastry and there is nowhere to sit down in some of these high-volume stores,” Starbucks spokesperson Alan Hilowitz said…

It is a move that has some Starbucks regulars saying … it’s about time.

Some, including Starbucks CEO Howard Schultz, say these two businesses provide “third places” between home and work. Thus, if the companies do things that inhibit social behavior, such as close locations, the suggestion is that they weaken the social realm as people will then be more isolated. (See a recent example of this argument here.)

But these businesses are not just providing a public good and this is one lesson that joins these two stories: they need to make enough money to keep the third places open. At Starbucks, the people who sat too long and used the free Wi-Fi ended being a nuisance to customers who wanted to pay for coffee, sit down for a short while, and then leave. At Borders, the best way to make sure the locations would stay open was to purchase more. Sure, a book at Borders might cost more but the purchase helps subsidize the cafe and the social life that may come with it.

This leads to a bigger question: would Americans be willing to pay for third places with their consumer dollars? If given the choice between a cheaper book at Amazon.com or a book at the nearby Borders, which would most people choose?

This is also a reminder that these locations are not public spaces: they are privately owned and can set their own priorities and values for the space. There still are public spaces in the United States: public parks like Rittenhouse Square in Philadelphia draw attention (in this book – though it also talks about shopping malls and markets, both privately owned). Instead of lamenting the loss of Borders or Starbucks, one could fight instead for taxpayer supported public spaces that should be open to all people.

Attracting legal talent to the Chicago suburbs

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Apparently Kane County wasn’t paying assistant state’s attorneys enough to keep them around until recently:

“This is a significant (economic) downturn historically, but at the same time we have to be aware the failure to pay a competitive wage will lead to our talented and experienced assistant state’s attorneys going to other counties. I want the best and brightest to work here in Kane County. That has a direct impact on public safety,” [Kane County State’s Attorney Joe] McMahon said.

It does seem that Kane County was out of sync with the rest of western Chciagoland:

McMahon said the current starting salary for a Kane County assistant state’s attorney is $40,000.

He is proposing to raise that to $53,000.

In surrounding counties, McMahon said, starting salaries are $51,600 in McHenry; $54,100 in DuPage; $53,700 in Lake; and $51,600 in Will.

Brian may have some additional insights on this, but it strikes me that most of this previous disparity in salaries could be explained by different costs of living in each county.  Still, if Kane wasn’t able to keep experienced prosecutors around, these proposed salary increases might be money well spent.