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Pistons and Windmills

An essay explaining why digital killed record labels but not music and what we should all learn from it.

When the country and music industry was pissing itself over Napster, I figured out that this whole internet thing was actually something worth considering. And honestly it was just a coincidence of timing, but it was a serendipitous coincidence since Napster and the war that surrounded it was a brilliant example of the panicking reaction to the impending change that the internet was going to be. Allow me to recount what I figured out.

First you have to appreciate the difference between digital and analog. To many people "Digital" means "High-tech" and "better", while "Analog" just means "Old" and "Quaint". But really "Digital" means something that is broken into a series of quantifiable bits of information. That is to say that you can represent something with a series of reproducible... things. And those things are some form of information.

Most people have enough understanding of computers and television to know that the images you see are made by a machine looking at something real through a grid and then recording the color of each little square. Each one of these little squares are "Pixels", which was originally a contraction of the term "Picture Element". So a picture of a leaf was reduced a list of "Green-green-green-red-red-blue-green-blue-red-green..." Or probably more like: ""

Computers take that list of numbers and show the associated colored bits in a stack of rows and when you look at this square of glowing pixels you see an image of a leaf. But you could take that same list of colors and use it as a guide for a Lite-Brite and get a pretty similar image. You could use it as a guide for a beaded curtain, a crocheted rug or a knit sweater and get the image of the leaf. A green dot, a green stitch of yarn, a green bead can all be stacked next to other colors, next to other colors, next to other colors... and you'll see the leaf. That list of colored points is the image reduced to information. The computer screen, Lit-Brite, beads, and yarn are the medium that this information is rendered in.

Ideas have been digital as long as there has been language. Language, itself, is breaking an idea of something down into reproducible elements that are not dependent on the medium. Every time I say someone's name it's a different breath of air that comes from my mouth. If I write something down it doesn't matter what I write it in, as long as it holds it long enough for it to be read. Ink on paper, carved on stone, scribbled in sand on the beach... the letters all convey the idea to the reader. That information is, again, rendered in different, independent mediums.

Analog information is not separated from the medium. A digital music file takes the ups and downs of a sound wave and breaks it into a million little levels. Then the player reads those levels and follows the instructions on where to put the diaphragm of a speaker which shakes to produce the sound. A vinyl record isn't a list of numbers representing the sound wave, it is a groove that goes up and down as the sound wave. The needle of the record player is shaken by being drug through the imprint of the track that was cut by another needle that was shaken in the same way when the original sound shook the cutting needle. The sound that comes out is an impression of the sound that went in, the same way that a toy popping out of a plastic mold got its shape from the existence of a physical piece of metal, not a list of points to hit as if we were a welder following instructions in a machine shop. The mold simply is; the welder reads and does.

The information is not separate from the medium because it is the medium. A photograph is a bunch of crystals that are the tone they are, the size they are and where they are on a piece of photo paper. A list of coordinates and tonal values could be written as magnetic flecks on a hard drive, holes in a punch card, ink on paper, even strategically arranged shells in the sand on a beach and the information that they represented (held) would stay in tact if you wrote it down on another medium. And someone could read it and follow those instructions and generate the same image from a grid of dots. A photo doesn't do this. You could treat it as a graphic notation of that list of dots and values but in doing so you'd be producing the information by measuring the dots in the photo and that is digitizing.

So what does it matter?

To the music and entertainment industries-- Hell, any industry that sells information, this is a complete upheaval. You see, you can't actually sell information. Information doesn't exist in the real world (The "Objective" world). Ink is ink no matter what shape it's in. Whether a coin is heads-up or tails-up matters to people, but the coin is the coin either way. Medium exists but info does not.

You can't sell a song, but you can sell the plastic that it's cut in to. You can't sell a story, but you can sell the paper that it's printed on. You can't sell a movie, but you can sell the tape that runs through a machine to generate the images and sounds.

And up to this point the entertainment industry was based on selling 2 things: 1) the medium that carried the information and/or 2) admittance to a performance of it. I'm going to put aside the latter as seats in movie theaters and space at concerts is not what the industry was worried about losing... mostly. It was worried about losing medium. But it wasn't actually "Digital" that was the problem; after all CDs are digital and while they lasted they were the saviors of the music industry. Laser discs were never a problem to the movie studios. What was the problem was computers.

You see: a computer is a completely malleable, rewritable medium. It was paper, vinyl, mag-tape and celluloid and it could be any of them at any given time and you could write over it over and over again. Digital was the removal of information from medium so that it could be rendered on any medium and computers were a medium that could have any information written on them. Computers were like a bound stack of paper that you could have any book written on and then at the flick of a switch have a different book written on the same pages. Computers were TVs that weren't just translating a signal that was flying by at that moment, they were spitting the show out on their own. They were vinyl where the groove was instantly and infinitely recut.

This screwed the music industry because, remember, they didn't sell music; they sold plastic. Now there were these records that could be any record and we called them hard drives. This would be fine if you had to buy one per album, the record industry didn't care about the vinyl as they demonstrated with 8-track, cassettes and CDs. But you didn't have to buy one of these new fangled discs per album, you would only buy one of these discs ever! And the record labels weren't even the ones selling them to you.

The conveyor belt that the record labels relied on to bring money from the customers to them (and ultimately to the artists) was abandoned. This didn't mean that entertainment was dead. Hardly. People have always been willing to part with cash for entertainment and the people who do the entertaining have always needed that cash to eat and pay their bills so that they can make that entertainment. This has been going on as long as civilization. The problem was simply that the method everyone had relied on for the past 50 years was breaking.

Now there are plenty of ways for cash to move from consumer to artist. Humans figured them out eons ago; After all "writer", "artist" and "musician" were careers long before recording technology. And the Wild West that was the internet was teeming with new and varied attempts to move money away from consumers. But the music industry was dying and it was dyeing because it held to this outdated paradigm. It was outdated because it relied on users being contained and forced into it and with computers that was not the case. Up until now all music transfer had to occur on the shelves of a music store or across a fixed number of radio stations. There were contained paths of distribution and the labels were able to fix dollar sales to them. But with computers and the internet there were new ways out and around the contained distribution channels, but the people who had fixed the music sales there myopic. They saw the forces that were opening up their paths and letting sales leave, but they didn't see the opportunities for sales that these same forces were opening up.

The entertainment industry was experiencing a shift to a paradigm of complete abundance. Economists have to have a better term for this-- It's the kind of thing that I'm sure appears as a vocabulary word on a spelling test your first semester of any accredited MBA program. But I don't have an MBA, just a lot of philosophy books and a stint as a bookkeeper at a punk rock record label.

The paradigm that I saw was broad and it pops up in many disciplines, not just economics. In fact I think it can best be illustrated be a non-economics example: a windmill and a piston.

Both a windmill and a piston are machines built to capture force and convert it into torque; that is to say, turn a rod. A windmill uses the force of moving air to turn the shaft of a wheat mill as does a piston use the force of exploding gasoline vapors to turn a drive shaft. The difference is that a piston is built to contain and squeeze the energy out of the thrusting motion by containing it inside the cylinder, while a windmill does not try to contain the thrust but merely collect as much as it can. The difference is that one is dealing with a source that is contained and finite and the other is dealing with a source that is uncontained and infinite.

Again these 2 paradigms can be seen in many disciplines. In marine biology you could compare a shark to a whale. The shark has to go after a single fish, chase it and eat it. A giant blue whale does not bother chasing individual krill. It merely opens it's mouth and tries to collect as much as it can; it isn't designed to be concerned with what it may be missing. A shark can't do that, it has to worry about missing what it is trying to eat. In fact I once watched a documentary where they made the point that small fish school together as a way to prevent large predatory fish (like sharks) from honing in on any individual member. This makes it nearly impossible for predators to be able to catch them.

But I don't want to stray too far from windmills and pistons. As with nearly everything, neither is inherently better; each is enabling or disabling, better or worse for given situations.

In a conventional brick and mortar sales business situation a piston model makes complete sense. The inventory is finite and needs to be contained. If I am running a car dealership I can only afford a certain amount of cars because each car costs money and each car costs money because each and every one requires effort and material to make. Information is different since it is not material. You make a movie once and it costs the same amount of money whether it has a million views or two.

The big difference to note is that what I want from a material thing is displaced if someone else is using it. If I buy a car and drive off where I want to go, I am preventing you from doing what you would buy that car for: driving where you want to go. However if the two of us go to a movie, we can buy two tickets, sit next to each other and both enjoy the movie because one person seeing a movie does not negate another person from seeing it. My windmill does not prevent my neighbor's windmill from turning on the same gust of wind, but if I burned a gallon of gas in my engine, he couldn't burn the same gallon of gas in his engine.

This difference is hardly new. It's been around as long as information has been and is why we have libraries. Libraries (books) are repositories for information and as we discussed one person using a book for what we want a book for (reading it) does not negate someone else from doing the same thing. I can read a book and then give it to the next person who can also read it. This is why libraries check-out books and even music and movies but not material merchandise. After all once I've eaten a hot dog it does not perform the same function for the next person, which is why I suspect "Books on food" is in the Dewey decimal system but not food itself.

Needless to say this does demonstrate that there is a gray area: Renting. Renting is where you pay for the use of something and then when your need of it has passed and it still has the capacity to perform its function, it's given to the next person. This is "Gray" in that is a mix of 2 sides. For the business of material items you aren't really selling the item any more, you are selling the time to use the material item. For information you can sell the time to use the item (read/ watch/ listen/ experience) by renting the analog object or selling a ticket to the time of the performance. But in both of these situations, material and information, you are no longer selling the object you're selling the time of use. And time is strange because it's unlimited but yet not infinite. As in an hour isn't limited to being sold once per unit but it is limited to being sold once per hour. As such rentals are treated like pistons because they are finite, even though the object maybe infinite.

The other finite factor that can be applied to infinite objects is Satiation. As in once I have watched a movie, I'm done, I don't necessarily want to watch it again. That want has been satiated. For business this makes the number of customers a finite factor for information. Even though a movie can be watched infinitely many times, people are only going to want to pay to watch it, say, one time, so there are only as many sales of that information as there are people.

So an object can be finited by only existing a limited number of times (once); it can be finited by needing time to be consumed and there are only so many hours in a day and so many days in a customer's life; or it can be finited by only being useful or interesting to a customer a certain number of times. With that in mind how can anything be considered infinite? The answer is that "infinite" is only infinite in the context of the consumption. It may not be mathematically "Infinite", but it is more than you could get. After all there are actually a finite number of microscopic shrimp on the planet at any given point, but a whale's ability to grab one shrimp is so immeasurably large compared to one shrimp and the total amount of all shrimp in any given area is so vastly much more than any one whale could catch that we call it infinite. The wind may not canvas the entire land and be truly infinite, but it is much more than I could or need to convert into torque.

The other aspect of these infinite forces that you have probably noticed is that while there is a lot of it, any given portion of it is not very strong. They are diluted or should I say, spread out. If we look back at our pistons and windmills, it's not specifically the gas or the air-- after all if you had a candle and put a piston over it, it ain't turning, but hundred year old toys show us that you can put a tiny windmill over it and the candle will turn a stem. And likewise tools that run off of an air-compressor are shoving air not burning gas vapors into a piston to get that power, they're using pistons.

So any given object-- material, information or otherwise, could be treated as finite or infinite based on being compared to the ability to convert/consume it and the method that we use to convert/consume is based on the density or dilution of the object.

On occasion in my life I've offered friends, especially lady friends, a "Deal with the Devil." A deal with the Devil is a playful way to obligate someone to do something for you: a bet whose prize is left TBD, a favor done for another one to reciprocate it later, etc. This is a fun and excellent way to get what you want out of someone. You say, "Okay, I'll do this for you but you'll owe me a favor to be cashed in later... shake on it."

Another fun and excellent way to get what you want out of people is karma. That non-specific force that, to Westerners, rewards kind deeds and punishes cruelty. You do good things for someone and at some point someone will do good things for you. A similar tit-for-tat arrangement that you may find with a Deal with the Devil, but there is nothing specific and there is no shortage of Karma.

The other night I was making my lady an offer. I was going to do something that I know she wanted to do and she was happy to accept and I thought, "Man, I could get something for this." Playfully I framed it as a Deal. She said fine but in my head (and I'd assume hers as well), that binding of it somehow tarnished it a little. She was still fine with it but I felt a slight regret and realized I would've been better off just letting it roll; I would've gotten better returns from karma than a Deal with the Devil.

The mistake I made is that my lady isn't going anywhere, so karma with her is not finite. As such the piston was the wrong tool for the job, I should've used a windmill. I was out trying to catch butterflies with a bear trap. Sure, a butterfly can't get away from the steal jaws of the bear trap but I would've been better off with the light touch of a gossamer net.

The challenge is to use the right tool for the job... as with anything. When music was digitized and took flight, the music industry was holding to the wrong tool. And to make it worse, instead of admitting to themselves that it was not working and looking for a better tool they attempted to make ways to force the new paradigm into the old methods. It was like watching someone try to convince their customers to walk around to the back entrance of a shop that sold lock-pick supplies by putting locks on the front entrance. They kept adding more and more barriers and blockades thinking that they could completely seal things off and redirect business, when all they ended up doing was making sure all the legitimate business went across the street to the more inviting shop while they lost their inventory to thieves.

Digital Rights Management, or "DRM" for short, became the Music industry's stronghold. The list of attempts at different DRM methods was long and equally matched by the list of ways they failed. The music industry was trying all different encoding and protection methods on music to prevent it from being listened to or transferred from its purchased format. They were attempting to bind the information to the digital medium. This was stupid and proved that they did not understand what was going on. Apart from not understanding the conceptual changes that the computer was bringing to the game (that I've been discussing here), they didn't appreciate the raw philosophical truth that with digital information, you cannot simultaneously serve it up and lock it down. Categorically, if I can get the information to use it-- if I can listen to a record, read a book, or watch a movie on a computer, it is available separated from the medium. If a computer can access the information in a file to convert it to the light and sound you expect from it, the computer can remember the information. It's like putting a microphone next to a speaker, there's no record that will play through a speaker that your customer will be able to hear that a microphone can't.

In the past, the information industries repeatedly freaked out about recording technology as it became commercially available. Hollywood attacked the VCR, the music industry attacked cassettes and later CD-burners and the printing press had its dissenters too. But these concerns passed because, for analog, the duplicate was never quite as good because even the best devices added a generation to the copy which dulled edges and rounded corners. Even CDs, and later DVDs, which were technically digital, had some amount of separation from copies because the copies where at best photocopied covers (at worst, blank discs with sharpee scrawl on it) and as it turns out the culture of enjoying music and movies included enjoying them as objects which meant that even pirated copies felt a little sub-par.

The big way that pirate copies were taking sales away were through satiation. People who were less concerned about authenticity were not buying because they no longer wanted to. They had already seen or heard the product. And what would be left of the market that would be interested in an authentic product over a pirated one was being dissolved by the fact that users were now interested in and buying computer files. They were authentic digital files. There was no hope for digital information bound to a medium.

Apple's iTunes came out the big winner of the Napster war because they realized early on that they weren't selling music anymore, they were selling convenience. I read an interview with one of Apple's main guys behind iTunes and/or the iPod and unfortunately I can't site it. But he made the point that when they started working on iTunes they went into it with the attitude/understanding that they weren't competing against record stores for music sales, they were competing against piracy. Even though they have some of their own DRM built into iTunes and the iPod, they succeeded because they made their tools easier to use than dealing with all the other crap or bit torrent clients like Napster. In essence, they knew that you can't sell music and you could no longer sell the plastic, but people would be willing to pay for the ease of having them handle all the moving, loading, organization, presentation, and whatever morality is associated with intellectual property theft. In our terms, the music industry was holding a solid steel piston up over their heads while Apple was smart enough stretch some rip-stop nylon between carbon rods.

Many years later The New York Times raised eyebrows and caught flack when they made their on-line articles available for free. All links to articles brought up a "Please subscribe and pay for this" message screen for those who hadn't subscribed to the site, but all you have to do is close the message and proceed to the article. Many observers thought it was the dumbest move ever. Who would pay for something if they weren't being forced to? Turns out plenty. Not only did the Times not lose money but they actually gained subscriptions.

And don't forget that at this point their information has shifted from a material product to a completely information one. It wasn't far off of that before, after all the bulk expense of a newspaper is the people it employees. But the paper wasn't free and in the same way that material objects that were given to one person couldn't be given to another, a paper that was given away was a lost sale somewhere else. But a newspaper on the internet behaves more like a movie since it takes a set fee to produce no matter if 10 people download copies or 10 million. Online readership is lighter than paper.

As the processors and bandwidth grew and accelerated, the cross hairs were able to advance from music up to motion pictures. And while Hollywood is making some of the same mistakes that the music industry did, they are largely learning from the those who went before. They still may not have been able to figure out the perfect sail, but they seem to at least be smart enough not to expect pistons to turn in the wind. Hollywood has made alliances with third-party providers like NetFlix long before any of the major labels did. Warner Brothers, a major movie studio, includes digital downloads of movies with their DVD and BluRay discs. And while it is generally easier to rip a CD, the plain truth is the only place in music where this same easing of customer effort with digital can be seen is in indie and minor labels (most notably the new move of adding digital downloads to vinyl LPs has reinvigorated the corpse of vinyl discs).

I feel this entire chapter in history and the general principles it demonstrates give some quantifiable weight and at least precedent to what would otherwise be simply hippie "Do Good" whimsy. This economics principle of pistons-versus-windmills that I don't know the name of is something that the entertainment industry is dealing with because it is being forced to deal with. It is being confronted with its own seeming mortality and has to find a way out. It will. I have no doubt that, as I said earlier, the money will find a way to move from audience to artist; we all love and need entertainment too much for it to go away. Though how we will get the energy out of the audience to keep turning the gears of the factory is still being decided.

But I also wonder what else this principle applies to. I tossed out an anecdote earlier that is a perfect example: karma. I have an infinite stock of basic niceness and kindness as well as effort. And while we all need-- or at least really want our effort and good deeds to be rewarded, perhaps we would be better served to consider these as small, light, and unlimited. The idea of "Loving unconditionally" and "Making yourself available in all ways to receive love" would seem to be saying just that... if only they had used the term that I suspect all MBAs know, it wouldn't seem so silly. Or perhaps we all just need a little more evidence to play the support function that Faith used to.

--Mark McBride
Dec. 2011

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