Commentary

The Collateral Damage Of Disruption

by Gord Hotchkiss , Featured Contributor, March 1, 2016

Not all the stories of disruption are of the “David vs. Goliath” variety. Sometimes they are more of the “David vs. Goliath vs. innocent bystanders” ilk.

Stewart Wills reminded me of this last week when I was writing about Alexandra Elbakyan and the Elsevier vs. Sci-Hub case. It’s easy to take aim at Elsevier. After all, they’re a very big 4.2 billion dollar target. It’s just too easy to demonize them. But they’re not the only academic publisher in the world.

Wills wrote, “Siding with this particular self-styled 'Robin Hood' may seem like a no-brainer (and a good, easy-to-tell story), but everyone seems so interested in focusing on big bad Elsevier that they miss a lot of important other affected parties in the picture.”

Wills pointed me to a posting from Caldera Publishing Solutions, a consulting firm that caters to smaller academic publishers. This post refutes my statement of last week that Elsevier is the only one being harmed by the actions of pirates like Elbakyan.

In fact, there is an extended chain of bystanders that threaten to be washed away by the tsunami of disruption that’s bearing down on the academic world. For example, there are “dozens and dozens” of society journals that use huge publishers like Elsevier as a clearinghouse. Behind much of the research in the Sci-Hub library, you’ll find nonprofit societies, which means that this is “less of a story of Robin Hood robbing from the town's greedy sheriff, and more a story of Robin Hood stealing from the town's hospitals and charities.”

The post draws an analogy to a disruptive wave that first broke 17 years ago now: Napster and illegal file-sharing. Given that we now have close to two decades of hindsight in this particular case, it might be useful to do a postmortem on Napster’s impact on the music industry.

I’m not sure if you happened to watch the Grammys, but if you did, you saw Neil Portnow, president of the National Academy of Recording Arts and Sciences, deliver a plea against streaming music services. The problem, said Portnow, is these services have commoditized music to the degree that royalties amount to fractions of a cent for each play of a song. That may be fine if you’re Rihanna or Sam Smith, but not great if you’re a struggling independent artist.

The problem with the plea is the same tactical error the Academy has made since the first such sermon, delivered by then-president Michael Greene at the 2002 Grammys: It was delivered in the wrong church. It’s very hard to feel sorry for the music industry when the most obvious examples -- the artists in the audience -- are all multimillionaires drowning under the weight of their own bling. Portnow might be right when he says music may no longer be a viable career, but it’s hard to swallow that message when delivered in the midst of such excess.

But did Napster, and the subsequent removal of friction from the music industry, truly wreak the damage that NARAS keeps warning us about? The fact is, we now have access to far more music than we did in 1990. We can discover new music more readily. Artists can now self-produce and distribute. They can even use Songkick to launch their own tours, or Kickstarter to fund a new album.

Will artists all get rich? No. But they have a better chance than they did two decades ago, when the only path to stardom led directly through the big (and cutthroat) business of music publishing. Napster, and its technological descendants, did what disruption is supposed to do: clean up the market, creating direction connections between content producers and the consumers.

As Stewart Wills reminded me, there are unintended consequences of disruption. One of them is that when the supply chain begins to be violently shaken from below, as was the case with the music industry, the earliest victims are typically small and fragile members of the ecosystem that depend on a bigger host. These tend to either fall off or become absorbed into the more robust survivors. That’s why you don’t find many corner record stores any more.

But then again, good blacksmiths or door-to-door milkmen are also damned hard to find.

content issues, music, pay wall

4 comments about "The Collateral Damage Of Disruption".

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Rick Monihan from None, March 1, 2016 at 2:21 p.m.
I think there is a misunderstanding of the term 'disruption' when you suggest there are unintended consequences. Disruption, by its very nature, will yield consequences - some which you may hope for and want, but more likely many which you cannot ever foresee. There is no way to engage any activity and presume to know what all the potential outcomes and consequences can be. That was part of Friedrich Hayek's speech when he accepted his Nobel Prize in Economics when he coined the term the "Pretense of Knowledge". Just because you didn't foresee the consequences doesn't make them unintended.

Joseph Schumpeter, too, when discussing the role of the entrepreneur in society and economics, was clear that disruption is the state of affairs that drags us, kicking and screaming, to a better state. He called it the "perennial gale" of creative destruction.

The nature of disruption in the current tech environment is that power is slowly moving toward the hands of consumers. Even when Napster was the reigning bogeyman of 'theft', the point was that Napster was making artists rethink how they made their money, just as the car made farriers rethink theirs.

You may call these unintended consequences, but as an objective outsider to both the events of Napster and the car, I see them as very intended consequences. Progress carries costs for those who seek to hang on to old ways and ideas, and those who cannot adapt to new realities. It's unfortunate, but it's wrapped up in the economic premise that there are no solutions, there are only trade-offs. What you look for in any business are trade-offs which benefit more at lower cost. Napster succeeded (at least in terms of changing the business) because it benefited more people and lowered the costs for consumers, as well as lowering the cost of entry into the business for musical artists.

In "The Great A&P and the Struggle for Small Business in America" Marc Levinson outlines how the disruption which the A&P brought to the US (better quality goods, lower prices, standardized weights and measures) far outweighed the loss of the mom & pop corner store. In fact, the A&P usually wound up hiring the mom & pop, and offered a better outcome than owning a corner store. During the Depression, the A&P was one of the few expanding firms, providing jobs - yet they were still victimized by an anti-trust suit which wound up being decided against them. Yet the fundamental changes the A&P brought had "unintended consequences" of shattering many small, unprofitable (or marginally profitable) businesses. Doing so was a net gain for consumers and workers. So were those consequences really "unintended"?
Reply

Kenneth Hittel from Ken Hittel, March 1, 2016 at 5:37 p.m.

wow, a lengthy & entirely inconsequential spiel! nothing you've said here in any way invalidates or even attempts to argue against gord's conclusions. nothing in either of the quotes from your economist heroes argues against those conclusions (although it does indicate you probably aced "modern capitalism 101" back in college 30 years ago).

having effectively conceded the consequences of discruption, you are left w/ a quibble over whether those are intended or unintended. you do not, of course, provide any evidence that the authors of such disruptions actually foresaw, let alone intended, any/all of those consequences: you simply state it as if it were defintional -- an oddly (caricatured) marxian kind of definition, rather than anything defined by hayek or schumpeter.

and i think you stand on the wrong side of the quibble. let's ask darpa and messieurs gore, cerf, et al. if what they foresaw, let alone intended, w/ their work, is what we know (love, hate, or are utterly indifferent to) today as the internet. i think it's safe to say that most all consequences of such major disruptions are, in fact, unintended, if we are to stick by what we mean when we say "i intended that" and "good lord, i never foresaw or intended that..."

and, if we must quibble, one more note: disruption is an internet-bound notion, analgous to but hardly indentical to schumpeter's famous creative disruption.

Gordon Hotchkiss from Out of My Gord Consulting, March 2, 2016 at 11:23 a.m.

Thanks Kenneth. I'm amazed at how some will find one semantic bone to pick, while skipping over the much more important larger consequences (intended or not). What is important here, as you point out, is the idea of disruption as driven by a technological catalyst and the resulting impact on entire industries. And another important distinction. Hayek and Schumpeter both saw entrepreneurialism as the force that drove creative destruction. But what is interesting about what we're seeing is the role of the user in this, empowered by new technological capabilities and challenging an existing supply chain. There is a networked, distributed dynamism at work here that may be a brand new flavor of disruption.

Rick Monihan from None, March 8, 2016 at 3:12 p.m.

I wasn't seeking to deny or otherwise invalidate anything written - but the spiel was hardly inconsequential.

Disruption is certainly not internet-bound, it's a situation that occurs in many businesses. Just because technology has shifted power into the hands of consumers (a net good thing), doesn't mean disruption in business can't occur in other ways, as it always has.

Bastiat, long before Schumpeter and Hayek, was well aware of it with his commentary on what is seen and unseen.

I'm sorry if you both took my comment personally, or as it seems, the wrong way. I actually agree with what was written. Am I picking nits? Not really, because language is important when making a point. Consequences happen, and describing them in a manner that potentially can lead to misinterpretation (unintended consequences is a concept which gives support to Luddites) and misuse.

I will say, however, that I also don't agree that the technological disruption we're seeing is different from anything prior to this. It's all a point of view, I suppose, though. When the A&P first introduced the US to the supermarket concept on a widespread level, the user was empowered. Prior to that point, the user (consumer) was limited by varied standards, poor packaging, lousy distribution and shipping.

Generally speaking, disruption occurs in business to give more power to users (consumers). Ford's assembly line may have benefited him financially, but certainly the power was put into the hands of consumers in a way like never before. Yes, you could buy any color car, as long as it was black. But prior to that, you couldn't even afford a car, so black was a reasonable option until another round of disruption allowed the consumer to choose color.

As I said, I agree with most of what's written. As an economist, though, I don't really see anything new in the disruption - just the delivery method.