We recently sat down with Stan Liebowitz to discuss his work on piracy and economics, as well as learn a little bit more about his journey from an ice cream vendor to one of the brightest scholars in the technology policy world. In addition to being a TAP scholar, Stan is the Ashbel Smith Professor of Managerial Economics at the University of Texas, Dallas, and the Director for the Center for the Economic Analysis of Property Rights and Innovation (CAPRI).
TAP: When did you decide you wanted to be a scholar? And how did you come to teach/research at the University of Texas?
I never actually decided that I wanted to be a scholar, or academic. I graduated from Johns Hopkins without a plan for what I would do after graduation. I sold Good Humor ice cream in Brooklyn, but after two rival ice cream vendors (brothers) came after me with guns I decided a future in ice cream sales wasn’t for me (a fairly entertaining story on its own). Then I discovered that I could get paid to go to graduate school. Teaching was never something I had planned to do; in retrospect, it has worked out pretty well.
As far as being in Texas, it is a response to my first few academic jobs. In spite of a youthful interest in blizzards and other storms, my first two teaching positions at the University of Western Ontario and the University of Rochester disabused me of the notion that continuous snow, day after day, would be a lot of fun. Older and wiser, a warmer climate seemed like an attractive idea.
TAP: What got you interested in piracy and economics?
Once again, it was pure serendipity. When I was at Western Ontario in the early 1980s, a Canadian government official from the Department of Intellectual Property visited the university to see if he could induce any of the economists to work on what seemed to me to be interesting research topics.
I conducted two studies for them, one on the impact of photocopying and the other on the impact of cable retransmission of television signals. As a result of those studies, I was generally acknowledged as having set up the basic theoretical concepts currently used in models of piracy. I also introduced the idea, and specified the conditions, under which copying might not harm the copyright owner.
As one of the very few experts on piracy prior to digital copying, I thought I should return to the subject when Napster made the cover of Time
magazine. That turned out to be a wise decision.
TAP: What has your research shown about the impact file-sharing has had on record sales worldwide?
The sound-recording industry has been decimated by online piracy. Since Napster’s birth, sales have fallen about 70% in the U.S. and between 50% and 75% in most major international markets after adjusting for inflation. My studies on this issue have found that the entire decline is due to piracy. I also have a recent paper, largely a literature review, that examines all academic studies of this topic. After constructing a new metric (common denominator) that allows the results from different studies to be compared to one another, I found that the average result shows the entire decline in revenues is due to piracy, although there is some heterogeneity in the results.
Movies, because of their large digital footprint, are more difficult to download, and thus were not heavily downloaded until broadband became popular a few years after music downloading became popular. Nevertheless, all the academic studies of the movie industry that I have seen conclude that piracy has hurt both sales of DVDs and theatrical exhibitions. Overall, revenues from sales and rentals have fallen about 25% from a 2005 peak, although this is likely an underestimate of the size of the impact from piracy.
TAP: What are the biggest piracy challenges currently facing the sound-recording industry?
The biggest challenge for the sound-recording industry is to convince the governments to amend the laws or regulations to allow for swift and simple punishment that might deter much of the piracy, or else to adopt a new business model that would allow monetization of usage even with piracy. On the former point, there is a recent academic study looking at legal changes in France indicating that simple letters from ISPs threatening to cut off the service of users engaged in piracy may lead to a fairly strong reduction of piracy. Unfortunately, simple solutions like this were fought by ISPs in the U.S. and abroad, who were, at first, very unwilling to help in the fight against piracy. On the latter point, new monetization models (e.g., relying on advertising) have not proven to work well, and it is not clear there is such a model that can work in a competitive landscape except to generate very small revenues.
An alternative solution popular among legal academics is for the government to run the music and movie business, which bypasses the piracy problems since taxpayers would fund the industries. This seems, on pure free speech and political interference grounds, to be a rather scary proposition. On economic grounds, it also seems highly unlikely that the government could run the music or movie business in an efficient manner.
TAP: What do you propose as a solution to piracy’s negative impact on the sound-recording industry?
I think the best solution is to have some penalties for piracy, such as removal of broadband or fines in a range of a few hundred dollars, and to have rules in place to require ISPs to go against their self-interest and help provide data about which computers are engaged in piracy and who owns the account for those computers. If this requires legislation, then it should be passed. To be effective, the policy merely needs to convince a reasonable majority of pirates to stop. The fact that some pirates will be able to avoid any such solution is irrelevant. This is quite a low-cost solution, and if it had been implemented when piracy first began I believe we could have avoided much of the difficulty that has arisen since. I also think users would barely have minded if such a solution had been in place early on.
TAP: What area of research are you planning to tackle next?
I am not really sure, although I think it will probably be a book. I am mulling over some potential topics. I am currently leaning toward a topic that would make me quite unpopular with my peers. But, unlike the ice cream business, I wouldn’t expect them to come after me with guns.
TAP: What song is currently playing on your MP3 player?
It is often something by Prokofiev, the Counting Crows, or Procol Harum.