Competitive Intelligence

Ringtone Piracy Growing in Asia, Highlighting Paradox of "Duplicable Creative" Goods & Failure to Overcome Supply & Demand

It would seem that one of the latest revenue generators for mobile phone companies and copyright holders alike - downloadable ring-tones - is being scuttled throughout Asia. In what has seemed to be an almost pure-profit business - what's it cost to produce a ring-tone download anyhow? - it seems fortunes are getting skinnier in yet another digital market, thanks to piracy.

This reminded me of the fundamental paradox in all such "duplicable creative" products, and how copyright holders have tried to overcome the iron law of supply and demand. The question is, if products are no longer scarce, does price elasticity still apply to them?

Because of the ubiquity of well-informed buyers in the modern business environment (i.e., they are aware of all competitive alternatives), the chief and only means by which true wealth can be generated by any group or individual entrepreneur today is through the sale of essentially cost-free-to-manufacture goods - in other words, recorded media such as music, movies, written works or software products.

So, the only stuff anybody can make that will have essentially zero manufacturing cost (and therefore unlimited profit margin) must be digital and therefore easy to copy. On the other edge of that sword, the characteristics of being digital mean those goods can be copied esssentially for free, as long as there's someone interested enough to crack the DRM (digital rights management) watermarking that diables copying or performance of that product outside its authentically paid-for copyright license. Okay, Arik, all pretty obvious so far, right?

The point is, what did they expect? That ringtones would never be pirated? What does the motion picture industry expect, following the example of the RIAA's failure so far to stop the erosion of the record industry - a loss of 30 percent of CD sales in the past two years alone. In other words, the business of selling CDs is no longer a business at all, despite the comparative health and popularity of music culturally. Cinema is next... and has already been impacted. What will happen to e-books...? What do you think will happen? Even Apple is seeing its lauded iTunes service affected by customers that are reselling their songs to other users, just to prove a point.

In the end, I think, duplicable creative goods will only be protected in order to compete just like any other commodity... on the economic foundation of supply and demand... the very principle that copyright holders have been trying to overcome in order to create wealth. If a good is no longer scarce (the very definition of cost-free-manufacture) then it no longer has value. Culturally, media consumers have simply woken up to that realization.

- Arik