(Paul Rosenberg, Interviewed by Louis James, Editor, International Speculator)

L: One issue that’s very important to us here at Casey Research, but which Doug Casey feels he’s not expert enough in to discuss with great authority, is the issue of “intellectual property.”

That’s in quotes because it’s an open question as to whether you can actually have property rights to something that’s intangible, and impossible to control, once you let it out of your mind. But as publishers – whose business can be destroyed if we can’t get paid for the products of our minds that we release to the world as ones and zeros through the Internet – it’s critical that we find a way to defend our ability to profit from the fruit of our labor.

On the other hand, a person sitting in his or her home, altering ones and zeros on their hard drives – which is all someone does when they download something they have not paid for – has not aggressed nor defrauded us. That makes it difficult to make a moral case for tossing them in jail.

So, we turn once again to Paul Rosenberg, friend and philosophical compatriot of Doug Casey – and a man who knows more about computers and the Internet than Doug and I combined.

Paul: Sure – I’m happy to help, if I can.

L: Great… so, where do we begin to grapple with this thorny issue?

Paul: Well, you’re in a quandary for a good reason: it’s a mess. We’re in a mixed-up moment of radical change. Not only all our laws but also our expectations, and to some extent our moral judgments, are based on an old regime that existed for hundreds of years – the copyright system. Copyright is wholly inadequate to the current circumstances, but it hasn’t changed yet.

L: True enough.

Paul: There’s a massive difference between atoms and bits. If I sell you my car, I give you the keys, you give me some form of money, and we both go our ways happy. But I can’t drive the car anymore – you have it. It’s made of atoms. Bits are different; I can sell you a program or a book I write, or an analysis I do, etc., but I give you a copy, not the physical thing itself. I still have my copy, and you can copy it too, a practically infinite number of times.

L: Imagine what would happen to the price of cars, if they could be copied infinitely, basically for free…

Paul: Exactly. And all of our laws and customs are based on models that worked when dealing with atoms. People are trying to apply them, contrary to their nature, to bits. That’s where we are today.

Some of the best work done on this is by a guy named Clay Shirky, who wrote a wonderful little article called “Newspapers and Thinking the Unthinkable.” The article tells a story about how, in the early days of digital piracy, a newspaper did a bunch of research to figure out how and why they were losing business on a popular syndicated column. It turned out that much of the trouble stemmed from a 14-year-old boy in Minnesota posting the column on the Internet.

These were Dave Barry columns, and the boy was doing it because he loved Dave Barry. He thought they were so funny, he’d type them in when he got home from school every day and spread them among his friends. The great quote I always remember from the story is:

“When a 14-year-old kid can blow up your business in his spare time, not because he hates you but because he loves you, then you got a problem.”

L: [Laughs] Exactly!

Paul: [Laughs] So, that’s our situation. What Shirky did, in addition to sketching out the problem, was to bring up Gutenberg’s invention of the printing press, which was the last time this sort of massive change occurred. The conclusion of the extensive study was that the new way of doing things does not really appear until the old way dies out completely.

That’s a troubling circumstance for people like you, Doug, and I, who publish information, to be in, but it does seem to be the way it is.

L: So, it’s messy to be in the midst of a paradigm shift. I guess I could have seen that one coming. Well, let’s talk about that paradigm shift – where are we at in the transition?

Paul: There will be a new paradigm, and people will be able to get paid for their intellectual works. It will have to happen, because an Information Age without intellectual works is like an industrial age without machines. I wish I could tell you what the new paradigm will be, but I can’t. It doesn’t exist yet.

L: Gee, thanks!

Paul: [Laughs]

L: That’s quite a leap of faith.

Paul: Yes, but it absolutely will happen. People want new and better ideas, songs, programs, entertainment – they want it and will pay for it. The question is how.

The current situation is shaped by the legacy of copyright law and is pretty much continuing in that vein by brute force. Copyright is being propped up by, more or less, the Walt Disney company and the recording industry association, which is going around suing 13-year-old girls for downloading the latest pop diva’s songs. This is basically thuggery, trying to hold the old order together.

In opposition, you’ve got organizations like Pirate Bay, that exist to spread stuff as far and wide as possible.

Now, I have to admit that my sympathies are a little bit more aligned with the folks at Pirate Bay than with Disney, but piracy only works until it wins.

L: Plunderers cannot exist without producers, parasites cannot live if they kill off their hosts.

Paul: Right; if piracy wins, it will create an intellectual desert, because no one will get paid for their work. Battles are being won and lost, but the war is ongoing, and we’re stuck in between.

People like you and Doug have an advantage, because the information you publish is time-sensitive. If you alert people to an undervalued stock, your people can usually get in before others find out and chase the stock price up.

L: Well… Sometimes we put out an alert on a fast-moving opportunity, so proliferation of copies across the net that take time may not matter much. But sometimes, it’s not a matter of quick action, but one of limiting the number of people who know, due to the extremely light trading volume of the stock – that could be ruined pretty quickly by people who post copies of our alerts to stock-related bulletin boards.

Other times, the advice is not an alert at all, but advice to build a position over time at certain price levels – again, it’d work against our subscribers’ interests if those recommendations got widely circulated to non-subscribers.

Paul: Then you’re vulnerable too.

L: It occurs to me that, while I’d have a hard time throwing a downloader into jail, my thoughts are a bit different about the uploader. The person who buys something under the explicit agreement that it not be copied and distributed, then does exactly that is breaking a promise – and they know it. I have a problem with people who break promises. Does that matter?

Paul: It may matter to you, and it matters to them too, for internal reasons, but it won’t make much difference in the world at large. The problem will persist.

L: You know, even though I’m a writer myself, I have to say I don’t have that much sympathy for the media giants either. Even very famous authors get a tiny percentage of what people pay for their books in book stores, and I understand it’s even worse in the music business. Because big money came from big distribution, that gave the big companies the leverage to negotiate contracts that gave them the lion’s share.

That limited access to large markets is going away, thanks to the Internet. If someone records a song and people like it, they can distribute it online for free and create a large, globe-spanning audience that can generate significant revenue. I’d like to see artists profit more from their work, so this seems to be generally a good thing to me.

There is something about the technology that levels the playing field between artists and publishers – what the Internet taketh away, it also giveth.

Paul: [Laughs]. The ethical thing to do, of course, is to pay artists and other creators for the things we get from them. The problem is that large, large numbers of people fail that ethical test.

Let me tell you a relevant story. Back in the days when they were throwing the Pirate Bay guys in jail, it angered me (they are out now, by the way). That wasn’t because I like people copying my books without paying me for them, but because the people who were going after the Pirate Bay guys were essentially trying to assert control over the Internet – and the Internet itself is a vital new social as well as technological phenomenon, far, far too important to allow those sorts of controls.

The Internet allows huge volumes of intimate personal connections to form between people all around the world, almost free. This is very, very important. To put chains on that in the name of copyright is offensive to me.

So, I wrote a defense of Pirate Bay. It was called “A Publisher Defends Pirate Bay.” I explained why I thought the prosecutions were wrong and why the Internet is so important. I also posted several entire books I’d written, available for download, for free, along with a request for those who enjoyed them to send a few dollars in – for them to do the right thing as well.

L: Wow – not many people would take such a bold action, even if they agreed with your argument.

Paul: I thought it was a good idea at the time, and I’m glad I did it. But I admit that it wasn’t too many weeks later when I pulled them back offline, because sales fell flat. It was the right thing to do, but I couldn’t continue in business that way.

L: Okay, so in proper idealistic fashion, you charged the windmill at full speed, got clobbered, and… where does that leave us?

Paul: [Laughs really loud] It leaves us in a quandary. The moral aspect is not that hard to define; if you get something you value, one way or another, some time or another, you should pay for it.

L: And you should keep your promises.

Paul: Yes. But many people won’t, and we simply do not have a mechanism for incenting the voluntary compliance that’s needed to make this work. It’s a real problem.

L: Well, can the technology improve to the point where people can produce and sell digital media that can’t be copied? Is that even conceivable? Instead of trying to make people use your products in ways you want, you simply sell them a product that can’t be used in a way you don’t want.

Paul: Boy, that’s a tough one. I’d say it’s definitely possible, but it has yet to be done in an effective way. There are, for example, some PDF documents – they are used in publishing engineering standards, for example – that you have to pay for and can only be copied once. And if you try to do it anyway, the thing will essentially dissolve.

But I’m sure there’s someone, somewhere, smart enough to figure out how to do it. If nothing else, you could take screen shots as you’re reading it, print them, and then scan them in, using common OCR technology to create an unrestricted text file. There’s always a hack.

L: Hm. But that’s laborious enough that it changes the economics of the situation. You don’t actually have to make it impossible to copy something, just enough of a pain in the posterior to prevent copying from becoming a mass phenomenon. Back in the days of LP records and cassette tapes, you could get stereo systems with two tape decks and produce as many cassette copies of your music as you wanted – but it took time, so it was a small-scale phenomenon few people really worried about.

Paul: That’s like putting speed bumps on roads instead of gates across them. If there are enough big speed bumps, people won’t choose those roads. But again, there’s always a hack, eventually even against speed bumps.

L: A never-ending war. But it seems to me that if there’s going to be a new paradigm to replace the old one, it’s going to have to be a technological answer to a technologically driven problem. Otherwise, if the answer is to hope teenagers in the former Soviet Union countries will become enlightened so that they stop hacking and copying… well, the proverbial snowball in that very hot place has a better chance.

Paul: Not a good thing to rely upon in your business plan.

L: No, not good odds to be on. But, as I mentioned before, the current situation can help small operators and new entrants into certain businesses create large audiences – the Internet gives everyone access to a global market, and creators of digitizable products access to effectively free global distribution. That can make for a good business plan.

Paul: Yes, and a large part of the music industry is moving in that direction. Of course, most every new band would love to land a big record contract, but they know the odds are against that ever happening, and they can make money by giving their music away and then charging for concerts and merchandise. The little guy can get a start that way, without an agent or an uncle in the business, etc. That emerging model in the music business may evolve into the new paradigm for that business, though I can’t be certain of that.

L: But that only helps the little guy. If you’re a big business in any sort of media production…

Paul: If you’re a big business in that business, you’re in trouble.

L: So… Suck it up and get over it?

Paul: Adapt. That’s all you can do.

L: Heh… Think of it as evolution in action. This is more of a Doug question, but you’re on the hot seat, so do you see any investment implications to all this?

Paul: That’s not my field, for sure, but my gut response to your question would be to short Big Music. All publishing and entertainment businesses have focused in the last few years on the “big hit” model. I know the publishing business best, so let me focus on that: they want the next Harry Potter.

They don’t want batters that hit solid singles; they need home runs. It’s as though they were addicted to that model; that’s how they know they can make money. So, they go for the very middle of the bell curve and look for manuscripts with the broadest possible appeal.

L: Sort of like the big three networks shooting for the lowest common denominator back before cable TV; they didn’t even bother trying to produce anything great, they just aimed at not losing 1/3 of the viewing audience.

Paul: Right. I have a friend, Sean Hastings, who wrote a book with me. I honestly thought it was really good, so we shopped it around, and the one guy who took the time to read it and get back to us said, “Look, you guys are really smart and have a lot of interesting things to say, but you’ll really have to dumb it down if I’m going to be able to sell it at Barnes & Noble.”

Given that state of the industry, though I’m not ready to recommend any companies to short, I would definitely say that I’m not interested in owning any stock in any publishing companies.

L: Well, plenty of food for thought in all of this. I’ll have to ask Alex Daley, our technology guy, where he thinks there might be investment opportunities in these trends. Thanks for taking the time to think it through with us.

Paul: You’re welcome.