By: Alex Mlynek

In his 2008 book The Pirate’s Dilemma (Free Press, $28.99), which will be out in paperback on May 5, author Matt Mason laid out how in some cases companies can learn from those that pirate their intellectual property and profit from that information. In light of today’s conviction of the four founders of Swedish file-sharing network The Pirate Bay for breaking copyright law, I thought it would be useful to post this previously unpublished Q&A I conducted with Mason in May 2008.

Can you please define the term pirate as you use it in the book?

I use the term pirate very loosely in the book. I use it to describe all kinds of people who’ve used information, or are using information, in novel and unconventional ways—often ways that they shouldn’t be using it. So that can be someone downloading music or remixing a record, or a piece of intellectual property that doesn’t belong to them. Or anybody who is creating something that is a piece of information, or a way to access or share or network information that’s kind of against the mainstream. The reason I used the term that broadly is because I sort of feel that lots of people think that anything that’s kind of a bit unconventional is something to be fought, or something they should be scared of. I was trying to use it in a provocative way just because I was aware a lot of people just are very suspicious of anything that’s new, and against the older business model.

What is the pirate’s dilemma?

The pirate’s dilemma is a dilemma all of us are facing. I call it the pirate’s dilemma because we’re all in the same space as pirates. And we’re all able to either act like a pirate, and take other people’s intellectual property and do unconventional things with it, or we’re vulnerable to pirates. The dilemma is do you fight this, or do you embrace this as an opportunity? If somebody does this to you, or you’re in a business where piracy is a problem, do you do something about it in the courts, or do you match the pirates play for play in the marketplace? The answer to the dilemma is: it really depends on the kinds of pirates you are facing, and what it is they’re doing. If they’re doing something that adds no value to society at all, then it’s usually advisable to fight piracy.

Last year [2007] Colgate had its toothpaste ripped off by a firm in China who started manufacturing fake Colgate toothpaste. Unfortunately there was a problem manufacturing this toothpaste and it had lead in it, and it was poisonous. Well, poisonous toothpaste isn’t adding any value to the Colgate brand, and it’s certainly not helping anybody who brushes their teeth with it. That’s a clear case of “this is bad. We’ve got to stamp this out.”

In the case of the music business, for example, people figuring out a new way to distribute music is adding value to all of these other parts of the music business, and it’s adding value to fans. People like being able to walk around with 30,000 songs in their pocket. And they like being able to distribute music in different ways. And, if you look at the market share of independent labels, independent labels account for a third of all of the record labels now in the U.S. That’s a huge change that’s going up and up. And that’s because these barriers to entry are not there the way they once were. It’s not about shelf space in Tower Records, it’s about getting the music out there and connecting with your fans, and there are so many ways to do that now.

How do you think pirates have changed the game in the marketplace?

In a variety of ways. One thing we’re seeing now is that while there’s lots of resistance to piracy, and it’s a problem and it’s affecting businesses in bad ways, people are starting to realize that letting fans copy and remix your ideas can be something quite positive. We’ve seen lots of the big media companies going from just automatically issuing cease and desist letters if somebody rips something off, to kind of considering things, and weighing out the pros and cons of whether the pirates have added value to their business. A good example is there’s a group called Guyz Nite who made a video called Die Hard that they put up on YouTube. This song is literally a recounting of what happens in the first three Die Hard films. It’s a really funny song. And they just used clips from the Die Hard movies to illustrate that point. And Fox’s legal department sent a cease and desist saying “please take this down, you don’t own the rights to these clips.” And they did. A few weeks later they get a call from the marketing department at Fox saying: “how much do we have to give you to put these clips back up?” Because they were promoting Die Hard 4, and millions of people were watching this video online, and they were noticing that it was making people aware of Die Hard, and remembering the previous three films. It was a good marketing ploy for Fox. So they ended up paying Guyz Nite to put the video back up, and inviting them to the premiere of Die Hard 4.

We’re seeing more and more stuff like that happen. Another example is Soulja Boy’s video Crank That was a huge hit in 2007. People just started taking cartoon characters and re-making the Crank That video, and getting these cartoon characters to do this dance that he does in the video, so you have like SpongeBob SquarePants, or Mickey Mouse or you have the Flintstones, you have all of these characters, the Simpsons, Family Guy, every major cartoon franchise was ripped off and put up on YouTube doing the Soulja Boy dance. And not one cease and desist letter has been issued yet over this because although copyright’s being violated companies are realizing they don’t have to pursue everybody every single time. If something is not detracting from the original franchise in some way, then people are letting it go. So it’s cool. Fair use is expanding in a strange way, and people don’t really talk about that. They talk about all of the bad things that are happening, companies suing people and being really paranoid, which is happening a lot, but on the other hand I think the tide is starting to turn on this.

Can you give me any examples from other industries?

A good example is in the pharmaceutical business pirates in the developing countries have been reverse-engineering patented drugs for years, and selling them at much cheaper prices, selling generic versions. This has been going on all over the world for decades. And entire governments like Thailand and India have ignored Western patents, and explicitly said they’re going to ignore those patents because the prices of the patented drugs are too much for people in those countries to afford. And rather than let people die they’d rather ignore the West’s IP laws, and have people get healthcare. There’s a leukemia drug they started reverse-engineering in Thailand that Novartis owned the patent to, and Novartis realized there wasn’t too much they could do in the course to stop this, it was just going to keep happening. So instead they went in, and started handing out the patented original version of this drug for free. And they made a big song and dance about this. They’ve got this new CEO, who’s quite progressive, and his thinking on it was that it was the right thing to do, but it was also a good move for Novartis. All of these drug companies spend more on advertising than they do on research and development and we all think that they are really awful, evil companies. They spend all of this money on advertising and it doesn’t really work. Well when they go and do stuff like this in the developing world people hear about it, and that makes people think better of those drug companies.

What would you say is the most egregious example of an industry ignoring pirates to its peril?

Without a doubt the music industry. The last 10 years, it didn’t have to happen the way it did with all of the lawsuits, and the PR disasters record labels have faced. People used to love the record labels, and now they’re considered really awful companies by a lot of people. That’s a big change, and the change has come because of the way they’ve responded to downloading.

And we’re going to get to a point sometime this year [2008] when there are some very widespread all-you-can-eat music models where you can consume as much music as you want, and download as much music as you want for around $5 a month. I think we’re going to see that happen this year at some point. That could have happened 10 years ago. That model was put forward 10 years ago, and the majors all flatly rejected it. It took a decade of them hemorrhaging money before we’ve got to this point where they’re like, “ok. We’ll do it then.” They could have really responded differently. They’re starting to now, and that’s good.

Do you think they can recover?

Possibly. Not in the way that they’ll go back to the old way of doing business, because that model is gone. CDs only account for 25% of the music business now. People just do not buy them the way they did, especially younger people. And the way the record industry propped its way up for years was to keep re-selling people music they own in different formats. You transfer from vinyl to tapes, and tapes to CD. Well that’s not going to happen anymore. You don’t need to do that with an MP3 file. It’s just a file, and the way you play it, there’s not going to be any big money in selling people a new physical format.

As music’s becoming more ubiquitous, and it’s travelling and flowing everywhere, other parts of the music industry are doing much better. Like concerts, merchandising, ringtones. Vinyl sales doubled in the U.K. last year [2007]. People are spending more money on music, they’re just not buying pieces of recorded music the way they once did. The record industry’s going to get healthier. It might not be the established companies, or companies that are very entrenched in one way of doing things that get healthier. Some of those companies may go away. But this has always been the way in the record business. You go back 20 years, in the U.K. there were four major labels: Decca, Pie, Phillips and EMI. Only EMI is around today. It’s like any business. There’s disruptive innovation and then different companies merge, and there’s always winners and losers, but that’s normal.

Do you think youth culture has more of an influence on capitalism now?

Youth culture and culture at large have always informed capitalism. If you look at the nature of capitalism, and of selling goods and services, the way we connect with audiences and sell people stuff is by giving that stuff meaning using culture. So you make fizzy drinks, and you want to get through to 18-24s, well you find out what the particular 18-24s you’re targeting are into—the music they like, the images that will appeal to them, the fashion they’re into—and you use these things to sell them fizzy drinks. That’s the way we’ve always marketed stuff to different groups of people. We sell things in a way that will appeal to them given their cultural preferences. So capitalism has always taken meaning from culture and attached it to things to sell those things to us. Well something different is happening now. Culture is finding ways to take meaning back from things that previously only existed in capitalist models, or corporate models. So say the idea of creating an encyclopedia. Well that was something that you really needed a company, an organization, to accomplish. Well, now we have things like Wikipedia, which is just a group of people getting together and deciding for the hell of it, let’s amass all human knowledge in one place and constantly update it. These are very new ideas, and just the way the things I was talking about like Guyz Nite ripping off the Die Hard film and creating a really cool ad campaign nobody at Fox would have come up with. That’s consumers taking meaning from products and using that meaning.

But there’s also an opportunity there for companies as well. There’s an opportunity for companies to work with these networks of people using their stuff to create meaning, and to add value to the company. So, the nature of capitalism is definitely changing. What’s becoming less important is capital itself. If you look at the music business, what the majors have been doing for a long time is acting as kind angel investors, or venture capitalists. They’ll pay for the video, and the production of the record and the marketing, and all of this stuff that required large amounts of money that most artists didn’t have lying around. Now you don’t need quite as much money as you once did if the marginal cost of distributing music is zero, if you can distribute one copy and a million copies on iTunes for the same amount of money you don’t need any trucks, you don’t need any CDs, you don’t need shelf space. And the way you can connect with audiences, you don’t need to make a $100,000 video and fight other people to get it on MTV. You can put it on YouTube, you can put it on MySpace, you can put it all over the Internet and all of these places where you can connect with fans, and if people like it, it will travel on its own. So capital is not as important as the value of a good idea in a lot of areas anymore.

Do you think copyright serves a useful purpose?

It definitely serves a useful purpose. The thing people don’t quite get about copyright is it’s supposed to protect creativity. It’s not supposed to protect old business models. It’s not supposed to be used to stifle free speech. In lots of cases it is [doing that]. Lots of times companies claim that people can’t publish things because it violates copyright in some way when often it doesn’t, and it’s just companies not wanting sensitive or controversial information to get out. The thing with copyright is it’s not one right, it’s a bundle of different rights. The really interesting stuff happening with copyright is things like the Creative Commons initiative, which kind of unbundles those rights. So it lets you as a copyright holder say, “I own the right to this, but I don’t mind if people do this with it, or I don’t mind if people remix it, or share it with their friends, as long as they don’t sell it, or earn money off it. Or as long as they attach my name to it, and say where they got the original. It’s ok for people to use it.” These more nuanced ideas about how we share information are really critical, because if you look at copyright law vs. how we actually do things it doesn’t hold up anymore.

This law professor John Tehranian in Utah he calculated on average how much money he’d be sued for, if he was sued every day for violating copyright purely by accident. Purely doing things that we don’t necessarily think of as bad, like photocopying a page in a book, or forwarding someone else an email that you didn’t write. And he worked out that worked out that on average he would be sued for $12.45 million a day. That just doesn’t make sense. Our laws are out of touch with how we use information. And that’s fine, if it’s ok to ignore those laws. There’s plenty of laws we have that people ignore. In London it’s still the law that every taxi cab must have a bale of hay in the back, which dates back to the days when taxi cabs were horses and carts, and you needed the extra hay to feed your horse. Well no one’s going to pull you over for not having a bale of hay in your cab, but it’s still the law. We can have laws and that’s fine, but sometimes it’s better for a society to choose to ignore those laws. With copyright in lots of cases there need to be allowances. People need to be slightly more relaxed about what they do and don’t sue people for.

Some people describe the open source movement as digital communism. Do you believe that’s an apt description?

No. It’s the exact opposite of digital communism. It’s not about central command. It’s about decentralization in the most extreme sense. That’s the thing people really miss. It’s about lots and lots of people working in this manner that has virtually no hierarchy at all in many cases. And it’s something different.

I can understand why people think it looks a little bit like communism because there’s no money changing hands, and it’s this way of getting stuff for free. Other than that it’s completely opposite, if you look at how people organize and do things in open-source environments there’s so little hierarchy, and there’s so little planning. It’s closer to a free market economy than lots of things we consider the free market economy. There’s so much protectionism in the world in what we consider our free market economic systems. Whereas something like open source there’s so much more freedom. The thing there isn’t a lot of the times is necessarily a market.

Open source is a way for networks to take things back from corporations that you previously needed a corporation to do. You previously needed a large company like Microsoft to create an operating system that would work well all over the world. Well, now we have stuff like Linux, now we have alternatives to Internet Explorer like Firefox, that you don’t necessarily need a large company to do. You can do it with a non-profit and a group of dedicated people who don’t necessarily want anything back for committing their time and skills to building stuff. So this is a massive change in the way we operate and organize as a society. This is the defining change of our moment in history. And it’s going to manifest in various ways in the future that are even more profound than creating an operating system or an encyclopedia. As we go on we’re going to see networks become almost as important in some cases as companies and governments, and as powerful. But the way they’re structured is completely different than anything that’s existed before. And we don’t yet have the economic tools to explain this properly. It’s like trying to define faith purely in terms of science or vice versa. Defining how open source works in terms of free market economics, neo classical economics or communism, none of those things are sufficient. So it’s going to take us a while to understand how this will work. But it’s a positive thing. These things are adding value to governments and corporations and society.

Why should businesses embrace this movement?

Open source is adding value to lots of business models, and it’s creating more opportunities. If you look at companies like Mozilla, Mozilla makes tens of millions of dollars every year because it sells companies customized versions of its software.  Stewart Brand very famously said in 1984 “information wants to be free” but customized information wants to be expensive. So if you give everybody something really cool for free there’s an opportunity to sell them something personalized, something they can’t get a free copy of, or a free copy is not sufficient. We’re seeing this in music, too. MP3 files want to be free, but concert tickets are now, well you can pay well over $100 and up to go to a concert now, and that’s kind of normal. That didn’t use to be the case. Concert tickets were a lot cheaper. But because music’s become more important to people the live experience has also become more important, and people are willing to pay more for that.

Whenever something becomes really abundant, it creates other areas where there’s more scarcity and more demand and so value and price tends to go up in other areas. And the future is about embracing when this happens to your business, if it’s adding value to society, then fighting it isn’t going to do you any good as a company, because the people you’re going to be fighting are your customers. And if throwing lawsuits at your customers becomes part of your business model then you have a terrible business model. And at that point it’s about finding if something’s become free, or there’s a really good open source substitute. Then the value has shifted, and it’s about working out where the value is, and where it’s gone, and how you can retool your business to take advantage of the new reality. And there’s no point fighting it if that is the reality because that’s just going to be a losing battle, which again speaks to what’s happened in the music industry.

What is the core message you want to deliver with The Pirate’s Dilemma?

The core message isn’t that we don’t need intellectual property laws or pirates are always doing wonderful things for society. Often they’re not. Often pirates are acting very cynically because they can steal something for free, or because they can see an opportunity to make money by selling stuff they don’t own. The interesting thing that they do is they do things that aren’t being done by the market. And often that’s a sign that the market’s not working as efficiently as it could, and there’s a new opportunity to legitimize something.

My message to companies and struggling artists, and all kind of intellectual property owners is that when somebody pirates your intellectual property then you’ve got two choices: You can go after people and fight them—often that’s the best thing to do. But sometimes it’s going to be better for you in the long run, and the short run, to compete with those pirates and work out what it is they’re doing that people like and find a way to do it better. That’s how Hollywood started. It’s how cable TV started. It’s how radio started. It’s how the record industry started. Edison was a pirate when he started because he had these funny little phonographic discs that could perfectly reproduce what live musicians did. Live musicians thought that these new records were going to be the end of the live music business. They didn’t realize it would be another revenue stream. So it’s about realizing when people start sharing information in unconventional ways often it’s an opportunity. And it’s about helping people embrace those opportunities. I’m sort of trying to be a negotiator between all of this.