The Economics of Innovation
Gates Clarifies 1/13/05
1/17/05 Update: In response to the comment posted, I agree with respect to 1999, 2000 & part of 2001 but stand by the rest of my comments which compare label execs unfavorably with VCs. I nowhere hold out the VC model of funding small businesses to be the best available model. It's not.
True free market funding would operate on a more direct, internet hosted model. The question here is, what is the role of the gatekeeper, the selector, the one who tells the public, "here's the good stuff". How well should that person be rewarded? That role is rewarded most highly, just look at the power and money available to VCs & label execs, but, how valuable is that role to society, now that we have the internet, which allows instant voting?
..............................................................
I got an email from Matt Stoller (IPac) recently. He was outraged that Bill Gates publicly called us Communists with a straight face and also mentioned that Gigi Sohn (Public Knowledge) wants now to go on the offensive (finally!) and come up with a plan. Yes, it's about time to start thinking proactively about what is called for here. So much talent has been spent on these court cases, a lot of this stuff is pro bono work performed by, of course, Communist lawyers. The same amount of effort could be spent in other ways.
My plea is to get a good plan in place, one that includes a public domain (see my 1/5/05 post), which, to me, is the key to setting these guys on their heels. That is going to scare them so much that they will have to react. Once the issue is about a public domain, the public can see the advantages and can see that our framers always intended for there to be a public domain and why.
The discussion would then be less about whether 25% of our population are thieves and more about what we want it to be about... who should have what kinds of control over our culture, our music, our film. Maybe at that point the ignorant American public will somehow catch on that they have turned over their own culture to companies who didn't create it and have no moral right to it, and, that it simply doesn't have to be that way.
This movement also needs to bring other skills to bear. As I've alluded to, I think guerrilla theatre has a place here. Because of the complex laws and issues, and because almost every medium besides the internet is owned by big business, it's been very difficult to mobilize and draw attention.
The media loves colorful, unusual ways of protest though. News editors do have to sell product and by staging interesting ways of drawing attention to what has been happening and what's at stake, the light shines on us and we can then deliver a message that can be heard. So far the best examples have been in the first wave of publicity, seeing a triumphant Hank Barry outside the courthouse, only to then have to go back and plead his case unsuccessfully before Congress. Also, the Wired CD and the Grey album. Lessig's last book sparked some collegiate interest.
Our side of this issue is far more sympathetic to the public and the fact that these corporate interests have brainwashed Americans to a degree that people are actually hostile to their own interests says a lot. The fact that, as Matt pointed out, someone as prominent as Bill Gates can get away with labelling us Communists, with impunity, also says volumes about where we are here.
So, let's look at answering this latest label thrown at us. First of all, last time I checked the Cold War was over. Though I'm sure Bill Gates who ripped off $43B of the world's wealth for himself, personally, finds Communist the worst insult you could hurl. Much better to have a system that allows one man to command more wealth than many countries, that allows 2% of people to use 90% of the world's resources. You deserve it, right Bill? Cause you gave us windows. No, you didn't invent it, you just ripped off the guy who did. I'm sure Communism is very, very scary for Bill. After Communism, public domain is probably what keeps Gates' gates up.
The mentality of these label execs screwing the artists and the public is a bit more complex, but very similar. A friend of mine reports that the label execs he has spoken with view themselves as VC's. First of all, you know you're in a bad way when you have to aspire to the moral position of the Vulture Capitalist, but, here we go. They aren't the same.
VC's look for groups of, essentially, highly educated, usually very accommplished, and all to often, men. They are looking for those most likely to execute a useful new technology, put in large infusions of money and good advice, absorb the risk, and try to get something made.
The label leaches look for the youngest, prettiest, stupidest kids they can find, play to their ego and offer them almost no real hope of profiting the way these company players do. What they put into the equation is far less than what the VC's do, and, proportionally, they reap far more. They take less risk because they usually advance only what they feel very sure they can get back. Now, VC's are also, increasingly, demanding revenues before investing. Still, the label deals are far more lopsided than private financings. I mean, it's not even close.
The VC's look for technologies to exploit. The labels look for children to exploit. There is a very big difference. One of the actresses in my film was signed to a major label at 18. She gave up a college education, she sang, danced, did everything those labels told her to do for 18 hours a day for many years. She never made a cent, neither did the other girls in her group. But her label sure did. They sold lots of albums and concert tickets, that's for sure.
When the VC's invest in a company, most of that cash goes directly to those working at the company in the form of salary. In music, they cut a check up top (have to, it's like the heroin dealer giving that first taste for free) but then most of the cash plows back into their own coffers to feed their own staff. VC is equity, labels essentially loan. I doubt they could ever get terms like that from anyone conversant in business. The lawyers and managers these artists may look to are part of the problem and have little desire to change a system they skim so much off.
In the VC world, the investment usually floats or sinks on the viability and functionality of the product. In music, it's far more about grooming and cultivating. Thus, the VC's are more deserving because they take a true risk. The variables of the tech marketplace include quickly outmoded technologies and a fairly free market economy. Music is a monopolistic economy over which the deep pockets exert far more control.
Additionally, the pool of viable companies seeking funding and the pool of potential artists are vastly different. The latter is huge compared to the former, and far more maleable. To analogize; the VC's are in a field of seedlings, they look for the healthiest, water them and hope they grow. This is what the label execs seem to think they are doing. In fact, they seem to have convinced Steve Jobs that they are astute as hell for doing it so well.
Label A&R guys are in a meadow of flowers and, essentially they plow it over, see what is still standing, and then sell the hell out of it. It's easy to find that "one in five thousand that can make it" (Jobs' words), just take the kid still working after 12 hours of dancing, and, if they look real good and are stupid enough to agree to get nothing for busting their butts for years... sign em up and plug them into the publicity machine... real hard.
VC's truly nurture start-ups. Major labels do exactly the opposite, they look for the most mature acts not yet signed, and they are plentiful. If you don't already have 70 songs and an audience the majors won't even look at you. Even though VC's are looking for income the stage of development is, relatively, far, far lower.
Are we communists? Hell no! What we want here is true free market Capitalism. What we want to change away from is monopolistic Capitalism which, in my mind, is far more like Communism because power is so centralized. So, for Gates, who has done more than anyone to destroy free market Capitalism all over the world... a man who has more money and power than any individual on the face of the earth to call US communists... well, I think a response is called for.
1/17/05 Update: In response to the comment posted, I agree with respect to 1999, 2000 & part of 2001 but stand by the rest of my comments which compare label execs unfavorably with VCs. I nowhere hold out the VC model of funding small businesses to be the best available model. It's not.
True free market funding would operate on a more direct, internet hosted model. The question here is, what is the role of the gatekeeper, the selector, the one who tells the public, "here's the good stuff". How well should that person be rewarded? That role is rewarded most highly, just look at the power and money available to VCs & label execs, but, how valuable is that role to society, now that we have the internet, which allows instant voting?
..............................................................
I got an email from Matt Stoller (IPac) recently. He was outraged that Bill Gates publicly called us Communists with a straight face and also mentioned that Gigi Sohn (Public Knowledge) wants now to go on the offensive (finally!) and come up with a plan. Yes, it's about time to start thinking proactively about what is called for here. So much talent has been spent on these court cases, a lot of this stuff is pro bono work performed by, of course, Communist lawyers. The same amount of effort could be spent in other ways.
My plea is to get a good plan in place, one that includes a public domain (see my 1/5/05 post), which, to me, is the key to setting these guys on their heels. That is going to scare them so much that they will have to react. Once the issue is about a public domain, the public can see the advantages and can see that our framers always intended for there to be a public domain and why.
The discussion would then be less about whether 25% of our population are thieves and more about what we want it to be about... who should have what kinds of control over our culture, our music, our film. Maybe at that point the ignorant American public will somehow catch on that they have turned over their own culture to companies who didn't create it and have no moral right to it, and, that it simply doesn't have to be that way.
This movement also needs to bring other skills to bear. As I've alluded to, I think guerrilla theatre has a place here. Because of the complex laws and issues, and because almost every medium besides the internet is owned by big business, it's been very difficult to mobilize and draw attention.
The media loves colorful, unusual ways of protest though. News editors do have to sell product and by staging interesting ways of drawing attention to what has been happening and what's at stake, the light shines on us and we can then deliver a message that can be heard. So far the best examples have been in the first wave of publicity, seeing a triumphant Hank Barry outside the courthouse, only to then have to go back and plead his case unsuccessfully before Congress. Also, the Wired CD and the Grey album. Lessig's last book sparked some collegiate interest.
Our side of this issue is far more sympathetic to the public and the fact that these corporate interests have brainwashed Americans to a degree that people are actually hostile to their own interests says a lot. The fact that, as Matt pointed out, someone as prominent as Bill Gates can get away with labelling us Communists, with impunity, also says volumes about where we are here.
So, let's look at answering this latest label thrown at us. First of all, last time I checked the Cold War was over. Though I'm sure Bill Gates who ripped off $43B of the world's wealth for himself, personally, finds Communist the worst insult you could hurl. Much better to have a system that allows one man to command more wealth than many countries, that allows 2% of people to use 90% of the world's resources. You deserve it, right Bill? Cause you gave us windows. No, you didn't invent it, you just ripped off the guy who did. I'm sure Communism is very, very scary for Bill. After Communism, public domain is probably what keeps Gates' gates up.
The mentality of these label execs screwing the artists and the public is a bit more complex, but very similar. A friend of mine reports that the label execs he has spoken with view themselves as VC's. First of all, you know you're in a bad way when you have to aspire to the moral position of the Vulture Capitalist, but, here we go. They aren't the same.
VC's look for groups of, essentially, highly educated, usually very accommplished, and all to often, men. They are looking for those most likely to execute a useful new technology, put in large infusions of money and good advice, absorb the risk, and try to get something made.
The label leaches look for the youngest, prettiest, stupidest kids they can find, play to their ego and offer them almost no real hope of profiting the way these company players do. What they put into the equation is far less than what the VC's do, and, proportionally, they reap far more. They take less risk because they usually advance only what they feel very sure they can get back. Now, VC's are also, increasingly, demanding revenues before investing. Still, the label deals are far more lopsided than private financings. I mean, it's not even close.
The VC's look for technologies to exploit. The labels look for children to exploit. There is a very big difference. One of the actresses in my film was signed to a major label at 18. She gave up a college education, she sang, danced, did everything those labels told her to do for 18 hours a day for many years. She never made a cent, neither did the other girls in her group. But her label sure did. They sold lots of albums and concert tickets, that's for sure.
When the VC's invest in a company, most of that cash goes directly to those working at the company in the form of salary. In music, they cut a check up top (have to, it's like the heroin dealer giving that first taste for free) but then most of the cash plows back into their own coffers to feed their own staff. VC is equity, labels essentially loan. I doubt they could ever get terms like that from anyone conversant in business. The lawyers and managers these artists may look to are part of the problem and have little desire to change a system they skim so much off.
In the VC world, the investment usually floats or sinks on the viability and functionality of the product. In music, it's far more about grooming and cultivating. Thus, the VC's are more deserving because they take a true risk. The variables of the tech marketplace include quickly outmoded technologies and a fairly free market economy. Music is a monopolistic economy over which the deep pockets exert far more control.
Additionally, the pool of viable companies seeking funding and the pool of potential artists are vastly different. The latter is huge compared to the former, and far more maleable. To analogize; the VC's are in a field of seedlings, they look for the healthiest, water them and hope they grow. This is what the label execs seem to think they are doing. In fact, they seem to have convinced Steve Jobs that they are astute as hell for doing it so well.
Label A&R guys are in a meadow of flowers and, essentially they plow it over, see what is still standing, and then sell the hell out of it. It's easy to find that "one in five thousand that can make it" (Jobs' words), just take the kid still working after 12 hours of dancing, and, if they look real good and are stupid enough to agree to get nothing for busting their butts for years... sign em up and plug them into the publicity machine... real hard.
VC's truly nurture start-ups. Major labels do exactly the opposite, they look for the most mature acts not yet signed, and they are plentiful. If you don't already have 70 songs and an audience the majors won't even look at you. Even though VC's are looking for income the stage of development is, relatively, far, far lower.
Are we communists? Hell no! What we want here is true free market Capitalism. What we want to change away from is monopolistic Capitalism which, in my mind, is far more like Communism because power is so centralized. So, for Gates, who has done more than anyone to destroy free market Capitalism all over the world... a man who has more money and power than any individual on the face of the earth to call US communists... well, I think a response is called for.
posted by Intervision at 4:06 AM
1 Comments:
Your impression of VC firms do not match mine. If they were as you suggest they are, then the DotCom bubble never would have happened because they wouldn't have been looking for the "youngest, prettiest, stupidest kids" who sometimes didn't have a technology or a real business model, but were just playing around with cool things the VCs thought they could exploit. Those of us in the software sector saw what was going on, with there being highly VC funded companies that had no product other than their inflated stock.
The same is still true today with poor quality software patents, where these patents would not stand up in a court (are not legitimate patents) and yet are the only "product" of some companies. This bubble needs to be burst as well if there is to be a stable market in software.
I am a self employed commercial Free/Libre and Open Source Software (FLOSS) company. Sometimes this involves authoring new software or modifying existing software, but my value-add is in taking existing knowledge and molding it to the needs of a customer, releasing back to the commons anything that I added that is of value to the commons.
I am a strong supporter of Free/Libre market capitalism, and take offense when people on the other side of politics like Bill Gates and his huge government protected monopoly rent handouts call me a communist. At least with communism the overly-powerful government was theoretically controlling the economy for the "public good", quite different than the nature of the excessive control we get from Microsoft.
http://www.flora.ca/russell/drafts/code-is-law-speedgeek.html
In order for the so-called "invisible hand" of the Free/Libre market to work people need to collectively make informed consumer decisions. This means that we need to educate the public on the true costs of their decisions. They need to recognize that decisions they make will either benefit or harm them. If they are like me who are tired of these debates with the dinosaurs then they should put their money and time where your mouth is: buy only from independents so that we can help build each other rather than subsidize our opposition. This doesn't mean not to pay for things from opponents that you use anyway (IE: copyright infringement), but to not use it at all as even when you infringe their copyright you are still helping them.
I only buy music and movies from independents since 2000, and I have used only FLOSS software for more than a decade. I will rent movies and listen to music on the radio, but I will not purchase any of their "products" whether tangibles (CDs, DVDs) or otherwise (so-called "legal" music downloads, even though I know that in Canada all downloads are legal).
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