|Burt Reynolds as Jack Horner in Boogie Nights (1997),|
pondering the change in format to VHS
Intellectual Property Scholar
For this esoteric undertaking I sat down with Kate Darling, a woman of many titles, among them robot researcher and intellectual property specialist. Kate is a freshly minted PhD and the author of a pioneering study on the economics of the online entertainment industry recently published in the Stanford Technology Law Review. Kate and I sat down for a talk on the topic at the G-rated Berkman Center for Internet & Society in Cambridge, Massachusetts. It went more or less like this:
LK: “What Drives IP without IP: A Study of the Online Adult Entertainment Industry” is the title of your paper. The first IP stands for Internet Pornography and the second one stands for Intellectual Property. And I have to admit I am more interested in the second IP than the first IP.
KD: That’s what everyone says!
LK: Is that what everyone says? And of course your interest would be in the Intellectual Property aspects of things as well, but how did you end up bringing that interest together with Internet Pornography?
KD: It’s actually a play on words, a description of a type of research that has become increasingly popular in legal scholarship, which is Information Production Without Intellectual Property. And there have been a number of studies looking at how industries deal with a lack of, or a reduced set of, Intellectual Property protections, particularly if they’re creative industries and they’re producing creative work. There have been studies on fashion, on standup comedy, on chef’s recipes, and all these communities kind of outside the boundaries of Intellectual Property.
I’ve been really interested in that stream of literature for a while and it occurred to me one day that these industries are really great to look at, as it’s a lot of communities with social norm enforcement. People have been looking at the music industry and the major motion picture industry but it just kind of occurred to me that the adult entertainment industry has always been on the forefront of innovation and driving technology adoption and they are basically operating without intellectual property protections. There’s so much piracy online and they don’t have the same kind of lobbying that the other industries have. So it just occurred to me that that maybe an interesting study for that space of “IP without IP”, but with more parallels to the industries that policymakers actually cared about, would be Internet Pornography. And he “IP” part also worked out, too. You can just substitute Internet Pornography for information production.
LK: To give us a sense of scale, I believe that it says in your paper that this is a billion dollar a year market.
KD: It’s very very hard to get accurate number on this industry, most of the firms are privately held and there’s also a question of how you define what pornography is. So there’s been a bunch of estimates, most numbers on the Internet I found to be inaccurate but, at a minimum, the online adult entertainment industry is a couple billion dollars, according to people in the industry and their estimates.
LK: In your paper you talked about information products and the old way of thinking about information products was copyright and then selling rights or licenses or physical goods. It’s easy to forget with what we’ve seen in the last ten or fifteen years that there was a point to copyright and the whole point of copyright was to incentivize economic actors to make products. This is something that you talked about a lot in the paper.
KD: Yes, exactly. So the theory, at least in the United States, or one of the main reasons or justifications for copyright law is you need to give people a monetary incentive to create, because otherwise, people will just be able to copy or replicate and the creators won’t be able to recoup their investment costs. It’s a very useful theory in some cases and it’s proven true to some extent but what this stream of literature has been showing is something that is intuitive to a lot of people -- except for economists -- which is that there are other ways to incentivize creation, and it’s sometimes a little bit over simplified to say that copyright needs to be the driver.
And what we also often forget is that copyright comes with cost, so there’s 'dead weight' costs of creating monopoly-like rights, and it also reduces access to creative works and raises prices of creative works. So it’s a very difficult balance, because both sides of the equation are very hard to measure. I just think it’s important to realize that it is a delicate balance and that we don’t have the answers. It's not as black and white as we often think, and that’s what these studies together are trying to show, and are also trying to establish the other factors that could play a role or could be incorporated into these very simple criteria that we’ve had so far.
|Porn online: At first a growth industry|
LK: To bring this now into the context of the work that you did, as far back as I can remember, and I don’t know exactly when it changed, pornography was about the only thing that people would pay for online. That was the one thing that people would always pay for, anybody could set up a webcam and be in business… and then, what happened?
KD: Well, what happened essentially is what happened in other industries but perhaps even more extreme. Piracy, unauthorized use of content, started getting more organized, so I guess the big change for pornography was when the same platform that YouTube uses was adopted for so called 'tube sites', where any user can upload short video clips of adult content and the platform themselves won’t be held liable for copyright infringement because under the DMCA (Digital Millennium Copyright Act) parties like YouTube are not responsible for what people upload to their platform. That created this massive amount of unauthorized content being put out there. Sometimes they insinuated it was even the tube site owners themselves doing it, to create traffic, because they can monetize it, through advertising. And this is why adult content, maybe even more than the music industry, has become a commodity to a lot of consumers. Meaning, if they can’t get a specific piece of content, they are okay watching a different piece of content.
LK: Next best is good enough.
KD: It’s not like a Radiohead album. It’s like, “okay I’ll just watch this other girl on girl thing”. So, except for the niche content market, that kind of really started straining the traditional model of creating and selling content.
LK: What was the methodology that you used? You mentioned that this is an under researched sector. I can’t imagine that there are a lot of academic researchers with a legal background -- as you’re a legal scholar as well -- looking at this industry.
KD: I wanted to do an empirical study where I actually go and talk to people in the industry and figure what are they doing, and how they are dealing with the situation, because I’ve been interested in it and there was just no information. I could find nothing, no one had ever actually gone and talked to these people about how they were still making money. So I had in depth conversations with some of the major producers in the industry and I think it was a good start into figuring out what’s going on. I wish that more people would look into it because it really is a fascinating and very innovative industry.
|The AVN Awards, only sort of|
the Oscars of the adult entertainment industry
LK: How were you received in that environment?
KD: Actually, I was terrified when I started this project. I had no connection to this industry. I had no idea what to do but I got my courage together and flew out to LA and Vegas and went to these conferences. And it turned out to be a really really great experience. When I explained to people I was interested in the economics of it,
they were so excited to have someone come in from a university who wanted to talk to them, and they were so forthcoming with information.
LK: And it sounds like from what I read in your paper that these are really business people, who are pretty oriented towards profit loss and cost and distribution, etc. Did you find that as well?
KD: I did, I’m not sure how the industry changed over the past years, and especially dealing with these piracy problems online, but I’m going to guess that a lot of the weaker industry players are people who are fooling around a little bit, and they kind of died out because you really need to be smart and professionals to weather this type of technology disruption. But yes, the people that I was dealing with, they were all business, they were very smart. It is amazing also to hear how much red tape they need to deal with because of the regulation, which makes sense to a certain extent. But their attitude towards dealing with not having support from the government, not having support from anyone, and taking red tape as a cost of business and moving on and pushing on and trying to think of new ways to monetize things was very impressive.
LK: Give me some examples of the new ways that this industry is monetizing, because what used to be the DVD or even photos, those turn out now to be commodities, as you said.
KD: One-on-one, or one-on-many. There are different formats and ways to do it but that’s something that people are so willing to shell out for because they can’t get that off of the tube sites. It’s an interactive experience. And then there’s the whole service aspect, if you’re offering people mobile services or cloud storage services for their libraries, or generally ways that make it easy to access content quickly, because the consumer tends to be impatient in this market. They want to be able to stream to every device and that seems to be working out as an extra luxury that people are still willing to pay for. And just generally I’ve seen producers are playing around with things like Google glass. You see them looking at all types of new technologies that will create a new more immersive or different experience for consumers to consume.
LK: And if anybody hasn’t yet seen the movie Boogie Nights that really is the story of one technology replacing another. Going from 35mm film to this thing called video, and private consumption, and packages in the mail. Now, when you talked about the webcam business, are the people who are doing that are they generally independent contractors because I’m interested in how things have changed with the star system and the studio system, which is how the adult industry used to work. Does it still work that way or to what extent?
KD: The feeling that I’ve gotten over the past year is that the industry is really changing massively and power is changing hands, money making is changing hands, so some of the people who are able to monetize this new technology have been in the business for a long time. They remain flexible enough to take over a completely new business model and reshape themselves. In other cases, it’s new market entrants coming in and making use of opportunity.
There was a company that came in and quickly purchased the most popular tube sites and started monetizing that and they’ve since begun to buy up some of the production companies or partner with them. So it’s really interesting how industry is becoming more consolidated and the players are different. This has happened before, just like in Boogie Nights. You see a turnover happen which, interestingly, is what a lot of the mainstream media has called the death of the industry, and I think that this turnover and this changing of hands is more survival that could actually work.
LK: In industries like the music industry, and as economist Joel Waldfogel in particular pointed out, it’s the only industry where as demand and willingness of consumers to pay went down, supply still went up. There are more bands than ever, and more people than ever making stuff, some are choosing to give it away for free, others know full well it’s going to get pirated…how has that played out in the adult entertainment industry, the volume of production?
KD: I’m going to guess that production of standard content has gone down with the problems that they’ve had as it’s been shifting to other business models, but the interesting thing for me was to see that copyright theory suggests that if we remove copyright protection, no one will produce any content. And yet, content is still being produced despite all these other business models, and it turns out that it can function as a loss leader. So people might give it away, producers will put short clips up on the tube sites, and use it to strengthen their brands.
In terms of demand, I think producers have also moved away from the long form movie format because, realistically and I think studies have shown that people do not watch one and a half hour of content.
LK: What, so, 8 minutes or…?
KD: I really can’t remember—I read an article once where the average of people watching in hotel rooms was 12 minutes, which even seems long to me.
LK: So the rest was just a complete waste of production funding?
KD: Yes, but if you do a shoot and cut things into different short clips that you can then sell on their own, it becomes cheaper to produce, and it’s also becomes cheaper and easier to distribute. In terms of producing content there’s still some incentive there. And you asked about the demand side. I don’t have numbers to measure this exactly but this industry is notorious for having very strong and also very stable demand. People have argued that they’re pretty much recession resistant because -- or more so than other entertainment goods because people will cut out movies, like mainstream movies, before they will cut out this type of consumption. I guess the challenge in the current industry is how you monetize that demand. But the demand doesn’t seem to be as much of a problem as for other industries.
LK: An interesting analogy there for the music industry is when the album became unbundled to singles, so now you’re suggesting that in the adult industry it’s the movie that’s kind of been sliced and diced into what, like, 8 minutes short something like that?
KD: Yes, or shorter, so that the tube sites will partner with producers and those producers will put up maybe three or four minutes, but there’s a length that’s set by the tubes sites that they partner with. For instance, maybe if you watch multiple clips, or maybe people purchase 8-minutes clips I think one of the problems that this industry is facing that, the music industry doesn’t face, is the issue of micro-payments.
In the United States it’s kind of difficult just selling individual clips for a couple of dollars because these companies are usually rated by credit card companies and they’re in a high risk category because they’re adult entertainment. So they have a minimum purchase amount that makes economic sense for them, which is not a couple of dollars. There are different models and ways to get around that but it’s like they face a lot more red tape than the other industries with this type of micro payment model.
LK: I think that’s probably why people are so much more business-minded in this industry, because they’re aware of all these challenges and obstacles, and I don’t know if this is a fair assumption to make, but I think people could be in it more for the money as opposed to, say, the music business, where there’s different types of artistic expression, or in the writing business, or film, or theatre. This one seems to be different in that way, is that fair to say?
KD: I would say—I don’t know—this wasn’t part of my interview study, I didn’t ask them why they were doing it or why they’re interested in. I did ask casually, how did you get into this, and for every single one of them, it was an accident or something like no one specifically tried to get into this industry. They just got into it by some side route, like, oh we found out this was making more money than our jewelry business.
|When retail fails, there's always the adult entertainment industry|
LK: Accidental entrepreneurs.
KD: Yes. Do you know there are a bunch of producers who at least claimed to enjoy what they’re doing artistically. They tend to be more niche markets and they tend to be in markets where they still are able to sell content to a certain extent because it’s so unique and hard to get that people will/might pay for the convenience of having a subscription. That would be a kind of service aspect.
LK: Fair enough. If you have to come up with a short list of bullet points of what you found in this particular industry, that is helpful in thinking about other low IP, Intellectual property industries, what would those be?
KD: I would say the thing that a lot of these studies have observed and that I also found in this industry was a shift towards selling experiences and services, and kind of secondary markets. I think this is something that’s neglected by traditional Intellectual Property theory and economics and that we’re seeing can be another model to finance production. I feel like we still need to be thinking a lot about the balance that our innovation policies strikes and that copyright strikes. It’s hard to say okay, well people can just make money with services and experiences and then, we can get rid of copyright all together. I don’t think that works for every industry. I think that there are a lot of questions left unanswered about what happens to the quality of content when you do that. And what happens to the amount of content.