SOPA and PIPA Are Bad Industrial Policy

There are many arguments against SOPA and PIPA that are based on the potential harm they will do to the Internet. (There's a comprehensive outline of those arguments here.) At O'Reilly, we argue that they are also bad for the content industries that have proposed them, and bad industrial policy as a whole.

The term "piracy" implies that the wide availability of unauthorized copies of copyrighted content is the result of bad actors preying on the legitimate market. But history teaches us that it is primarily a result of market failure, the unwillingness or inability of existing companies to provide their product at a price or in a manner that potential customers want. In the 19th century, British authors like Charles Dickens and Anthony Trollope railed against piracy by American publishers, who republished their works by re-typesetting "early sheets" obtained by whatever method possible. Sometimes these works were authorized, sometimes not. In an 1862 letter to the Athenaeum, Fletcher Harper, co-founder of American publisher Harper Brothers, writing in reply to Anthony Trollope's complaint that his company had published an unauthorized edition of Trollope's novel Orley Farm, noted:

"In the absence of an international copyright, a system has grown up in this country which though it may not be perfect still secures to authors more money than any other system that can be devised in the present state of the law.... We cannot consent to its overthrow till some better plan shall have been devised."

America went on to become the largest market in the world for copyrighted content.

That is exactly the situation today. At O'Reilly, we have published ebooks DRM-free for the better part of two decades. We've watched the growth of this market from its halting early stages to its robust growth today. More than half of our ebook sales now come from overseas, in markets we were completely unable to serve in print. While our books appear widely on unauthorized download sites, our legitimate sales are exploding. The greatest force in reporting unauthorized copies to us is our customers, who value what we do and want us to succeed. Yes, there is piracy, but our embrace of the internet's unparalleled ability to reach new customers "though it may not be perfect still secures to authors more money than any other system that can be devised."

The solution to piracy must be a market solution, not a government intervention, especially not one as ill-targeted as SOPA and PIPA. We already have laws that prohibit unauthorized resale of copyrighted material, and forward-looking content providers are developing products, business models, pricing, and channels that can and will eventually drive pirates out of business by making content readily available at a price consumers want to pay, and that ends up growing the market.

Policies designed to protect industry players who are unwilling or unable to address unmet market needs are always bad policies. They retard the growth of new business models, and prop up inefficient companies. But in the end, they don't even help the companies they try to protect. Because those companies are trying to preserve old business models and pricing power rather than trying to reach new customers, they ultimately cede the market not to pirates but to legitimate players who have more fully embraced the new opportunity. We've already seen this story play out in the success of Apple and Amazon. While the existing music companies were focused on fighting file sharing, Apple went on to provide a compelling new way to buy and enjoy music, and became the largest music retailer in the world. While book publishers have been fighting the imagined threat of piracy, Amazon, not pirates, has become the biggest threat to their business by offering authors an alternative way to reach the market without recourse to their former gatekeepers.

Hollywood too, has a history of fighting technologies, such as the VCR, which developed into a larger market than the one the industry was originally trying to protect.

In short, SOPA and PIPA not only harm the internet, they support existing content companies in their attempt to hold back innovative business models that will actually grow the market and deliver new value to consumers.