"Digital is cheaper" & other bogus arguments

A couple of weeks back, I took part in the USPTO & NTIA's Public Meeting on Consumer Messaging in Connection With Online Transactions Involving Copyrighted Works. The idea behind the event was to bring together academics, consumer advocates, and industry to discuss the problem of inconsistent consumer messaging when it comes to transactions for digital goods. I was there because my work with Chris Hoofnagle is the only published study of how consumers understand advertising language like the Buy Now button, which we show leads many consumers to incorrectly believe that "buying" digital goods gives them the same rights to lend, use, give away, and resell that they are accustomed to for tangible goods.

It was great to hear the range of perspectives from folks like BJ Ard, Lorrie Cranor, Bob Gomulkiewicz, and Florencia Marotta-Wurgler—among many others—who brought their expertise to bear on this issue. But the absence of Amazon and Apple, the two companies at the center of this problem, was notable. As the leading digital retailers, they are best positioned to improve consumer understanding of digital transactions. Despite what I'm sure were persistent efforts by the PTO and NTIA, those companies couldn't bother to send a single member of their legal, policy, or design teams. Nor did any major copyright holders take part. 

Instead, as the agenda reflects, industry was represented by the usual DC trade associations and lobbyists. Rather than contribute to a productive conversation about this issue, they spent the day denying there was anything to worry about and making their best efforts to scare the organizers off with vague and occasionally nonsensical allusions to antitrust and the first amendment.

There were also a few efforts to cast doubt on our Buy Now research. But thanks to some rather blatant filibustering, I wasn't given any meaningful opportunity to respond. Most of these arguments can be disposed of in a sentence or two, but one deserves a more detailed response.

The easy ones first:

• A number of industry folks insisted that the licensing landscape is simply too complex to be reduced to our proposed short notice format. They pointed out that each publisher, studio, and label negotiates separately with each platform. There are thousands of different terms out there, they claimed, and that variety would overwhelm consumers, even in a more readable format. Even taking this assertion as true, it ignores the fact that no matter how many deals go on behind the scenes, each platform has a tiny handful of consumer-facing license. Apple has one license for US customers. Amazon has separate licenses for its Kindle, mp3, and Video stores. That's four. I think we could manage the complexity. When I asked the industry representatives to clarify this obvious discrepancy, they couldn't muster a single word of explanation. It was sort of embarrassing, honestly.
• Others insisted that there can't really be a problem here because there are so few consumer complaints and so many repeat customers. It took me about 30 seconds of Googling to find multiple posts on Amazon's own forum where consumers are asking and complaining about the ability to resell and lend their digital goods. Of course, I don't have access to their internal emails. But the public record is enough to cast serious doubt on this claim. As for repeat customers, the answer is pretty simple. The absence of the rights to lend, resell, and leave digital goods in your will are latent defects. Consumers don't know about them until later, sometimes much later, and may happily spend hundreds or thousands of dollars before they discover that they can't use or transfer these goods in the ways they expected. Volkswagen sold 11 million diesel gate vehicles before anyone caught on, after all.
• In a moment of what I can only explain as unintended forthrightness, a representative from the Digital Media Association argued that retailers shouldn't be forced to clearly disclose limits on digital goods because doing so might reduce sales. In other words, if consumers knew what they were really getting, they wouldn't want these products. Without realizing it, he spelled out the case for false advertising law. If telling the truth about your product prevents a sale, you don't deserve that sale.

But mostly I want to focus on an argument that crops up over and over again in this debate. It goes something like this: "Consumers understand that digital goods come with a more limited suite of rights because they are so much cheaper than their physical counterparts. This difference in price gives consumers a clear signal that they aren't receiving the more robust set of rights they get when they cough up the extra money for a CD, Bluray, of physical book." 

I'm tired of hearing this argument. For one, it demonstrates the same lazy set of self-serving assumptions that prompted our work on the Buy Now button in the first place. What consumers know, understand, and believe are empirical questions. If you want to use those terms and make those sort of claims, bring data to back them up, or stop expecting people to take you seriously. For another, it just isn't true. Digital isn't always cheaper. And it certainly isn't cheap enough in comparison to physical copies to communicate anything to consumers about their rights. How do I know? Fourth grade math. Try it at home, kids.

I looked at the top 100 best selling records, movies, and books on Amazon. And it turns out, the claim that digital cheaper is bogus. 

There were 77 CDs out of the top 100 that had an equivalent mp3 version for sale. That number excludes vinyl, cassette, and CD-only releases. The average price for a CD was $11.07. The average price for the corresponding mp3 was $11.38. That's right, it costs an extra 31 cents, on average, to buy a digital album—despite the fact that the CD can be resold, loaned to a friend, and given away in a will. What's even more absurd, 68 of the 77 CDs came with free AutoRip mp3 versions of the album. So for less money, you get both the CD and the mp3s.

In 40 of 77 instances, the digital copy cost more. In 36, the digital copy cost less. In 1, the CD and mp3 versions were the same. By the way, that was Jason Isbell's new record, which I've already preordered on vinyl. The distribution of prices—CDs in blue, mp3s in green, prices in dollars— looks like this:

There were 63 Bluray movies out of the top 100 that had an equivalent digital version. The average price for a Bluray was $17.54. DVDs were considerably cheaper, but I used the current generation format. The average price for the corresponding Amazon Video version was $17.63. Again, digital was more expensive, not less—despite what copyright holders and retailers want us to believe.

Out of the 63 titles, digital was more expensive in 24 instances. Blurays cost more for just over half of the titles, 34. And they were the same in 5 cases. Again, the distribution: 

Finally, let's look at book prices. Of the top 100 books on Amazon, a list that includes both hardcover and paperbacks, there were 88 titles with a corresponding Kindle book version. The average physical book price was $11.71. The average Kindle book price was $11.41. Digital readers saved a whopping 30 cents. Is that enough to communicate prohibitions on lending, resale, and giving away your books? Unlikely. Our research shows consumers place a considerably higher value on the rights associated with ownership.  Amusingly, George Orwell's 1984—the book Amazon infamously deleted from the Kindles of its customers—was among the titles that cost more on the Kindle than on paper. Does anyone really think consumers are paying more for the privilege of remote deletion?

Of the 88 books, the Kindle version was more expensive for 40 of them. They were the same for 1. And the physical books cost more for 47, again just over half. Here's the distribution:
 

So until someone comes up with a more complete dataset, which the trade associations and their members easily could, it's time to retire this bogus argument. But somehow, I doubt we've seen the last of it. For one side of this debate, facts don't seem to matter.