ECON: Voluntary Payments

From: Chris Rasch (
Date: Wed Feb 21 2001 - 05:11:45 MST

Fred Hapgood has a number of wonderful articles on his website at Be sure to check out
Underground Montreal at What follows is the
text of a presentation he made to the Digital Commerce Society of
Boston on September 5, 2000

You can find the original here:,
another website I recommend.

We are discussing here today mechanisms that would allow
small payments to be made on a quasi-automated, highly
configurable, and entirely voluntary basis to any
desired individual or organization.

While such a system would have many applications, our
immediate interest is sending money directly to artists
as 'applause' for their works: for instance, to flip
Elastica a dime whenever I download or play their hit
'Connection', or to parcel a set amount across the
accounts of all the musicians I listen to in a given
month, or whatever. There are many alternatives, which
is one of the charms of the system.

Voluntary payments are not inherently radical, since in
theory they might do nothing more than supplement the
current revenue structure. However, some think such
payments might actually replace the present IP
(intellectual property) revenue system, at least for
some media. Technological changes might so undermine the
present system as to make it necessary to find an
alternative for the revenue and services the current
model pays out, directly and indirectly, to
artists. Others feel that the current system has drifted
so far out of synch with the relationship society wants
and needs to have with its artists that it needs to be
replaced with something better, entirely apart from the
technological or business issues. In this view,
voluntary payments would be that something better,
establishing a more sensitive, responsive, and intimate
relationship with our artists. Some of us hold both

There is no doubt that Big Copyright seems to be dying,
though it is dying hard. Already staggering from the
effect of simple client- server filesharing, the
copyright industries got another serious whack last year
from a new style of networking, called peer-to-peer. The
idea behind P2P is that any machine or group of machines
can perform any function or supply any resource for any
other user or group of users. I can store material for
you; you can do processing for me. Any random group of
machines can combine to form their own online service,
their own AOL, independent of who owns those machines.

As Napster shows, P2P is reasonably compatible with the
technological environment now. Down the road a bit (like
a year or two) the spread of broadband, with its
continuous connections and faster file transfers, plus
other tweaks like file streaming, will make the
technology even more attractive. If you think we are
moving into a world in which your net connections will
be mediated through and over many different devices,
then being able to generate integrated catalogs for all
the media types (family videos, recipes, gene sequences,
galaxy profiles) residing on every relevant device, from
workstations to Palm Pilots, is close to a necessity.

The international reach of Napster hides an interesting
feature of P2P networks, which is that their usefulness
both accelerates and saturates rapidly. Imagine that you
wanted to build a P2P blues catalog. You start by asking
your friends, who ask their friends, etc. The first few
dozen members might bring in several hundred tracks,
giving you an integrated library larger than any but the
very largest blues archives. Members added after this
point might add an average of one or two new files. Once
you got to a network of a few hundred, or at most a
thousand or two, you might need to add ten or twenty
members to get one new track. At that point there is no
incentive to build the network any larger.

Indeed, to the contrary: P2P networks have many reasons
for wanting to stay small. A network built up out a few
hundred trusted nodes -- the friends and family of
members of the Boston Blues Lovers Society -- would be a
lot safer and more secure than a file server sitting on
the current internet and exposed to the whole
world. There would be less exposure to marketing
messages, hackers and other mischief-makers, and anti-
piracy cops alike. Students have lots of ways to deal
with the anti- Napster access restrictions colleges are
imposing, but perhaps the simplest is to build a P2P
network that never even asks to get past the college
firewall. A catalog combining the archives of the
residents of a single dorm would probably be able to
deal with 99% of the requests put to it by other
students at that college.

The challenge systems like these present to business
models organized around control of copyright is quite
general. While music, films, and books are perhaps most
vulnerable, there seems to be no reason why pay- per-
view and subscription cable won't go down the same
drain, as software spreads that allows users to
redistribute the signals coming out of the audio and
video jacks of their televisions. Even paid admission to
live performances might suffer some loss of revenue to
customers 'broadcasting' their shows with wireless
videocams, though obviously no technology in our
lifetimes is going to fully replace the electricity of
live events.

The only category of content that is even somewhat
piracy proof is interactive media; media that offers a
variety of paths through an experience. Any one path can
be recorded and distributed, but the freedom to choose a
path cannot. While most interactive experiences rely on
physical presence (listening to one's sounds mingle with
those of the audience, doing the wave, talking with
whoever happens to be in the next seat), online
analogies are not too hard to imagine. A viewer might be
able to wander (virtually speaking) through any path in
a concert hall or even through the scenes in a
movie. (However, note that given enough processing
intelligence even quite complex interactive experiences
could be pirateable, since a very smart computer would
be able to figure out the domain well enough to predict
these experiences.)

We sometimes hear that the present system can adapt by
out- Napstering Napster -- building a huge catalog that
would match the convenience of P2P catalogs and then
selling encrypted downloads out of this database. This
is the 'getting it' option. Consultants and analysts
are peddling it from every corner. I have serious
doubts. An official metacatalog raises huge antitrust,
channel conflict, and institutional culture hurdles. I
have no concept of what would be involved with getting
the rights required to build such a huge base, but they
would be very complex, which is to say expensive.

But leaving all that to one side, an official site will
probably not be able to run in P2P mode. The companies
would be unlikely to trust us enough to want to be
dependent on our resources, and we are not likely to
want to let them do so even if they did. An RIAA Napster
will have to buy its own storage and bandwidth, both of
which it will need a lot of to be competitively
convenient. All these difficulties suggest it will be
very hard for an "official Napster" to keep its prices
low enough to compete with the unofficial libraries that
are bound to be running everywhere on the net. The
industry might try to use their lawyers to drive P2P
networks out of existence, but a networking culture
built out of hundreds of thousands of catalogs would be
very difficult to bring to heel.

This story is formidable enough, but there is a second
problem that has nothing to do with technology: there
can be no understating the effect of the developing
impatience of the culture at large with copyrights,
especially as they relate to music. First, sharing --
exchanging reactions to experiences held in common --
lies at the core of what culture is. If the world has
changed in such a way that copyright and simple, cheap,
sharing cannot co-exist (and the forces of Big Copyright
agree with me on this, if nothing else) then copyright
has to give way.

Second, revenue models organized around copyright
naturally have very low marginal costs. Once the
production or publishing costs are paid, the cost of
printing one extra book or stamping out one more CD is
very low. Such industries naturally want to base their
sales on the smallest possible number of discrete
products (titles) so as to enjoy the most favorable
economies of scale. As the sector develops, copyright
businesses naturally become blockbuster-seeking; they
look for products that favor large homogeneous
constituencies that respond in a disciplined way to a
drumbeat of cheap, low- bandwidth, promotion
messages. These are of course are fine people whose
needs should be met, but they are not the whole culture.

Finally, it seems critical to a culture that audiences
communicate their responses to artists, and to do so in
way that is as finely- tuned as possible. Audiences have
to be able to talk to their artists, freely and at
length. They need to be able to applaud. The copyright
model makes this hard, because the audience response is
mediated by the copyright-owner, which at the least
muffles the signal and possibly redirects it
altogether. When people buy a Spice Girls album, whose
are they 'applauding': the artists or EMD/Virgin's
promotion and marketing departments?

These technical and cultural trends interact. Our
dissatisfaction with copyright causes us to champion
technologies that evade it (why are we not sad to see
copyright eroded?) and the technologies allow us to
experience and think about new relationships with
artists against which our dissatisfaction with
copyrights grows even worse. We end up thinking about
alternatives like voluntary payments.

Voluntary payments are conceptually simple and cheap to
maintain, since all parties have the same goals: the
donor wants the money to go to the artist and the artist
wants to get it. They are infinitely flexible, and
therefore can be configured to be receptive to any sort
of user response. In theory when I listen to a
performance by the Boston Symphony I would have the
choice of donating to the composer's estate, to the
conductor, the soloist, the musician's union, or any
combination of these. If the Symphony was able to make
use of this information, more power to them. In the
context of music they would almost certainly pay
musicians more than they get from the copyright
industries now, because right now almost no musicians
get anything from their recording companies but some
free CDs.

People have lots of reasons to give money to artists:
because they need it; because they deserve it; because
this is righteous shit that the world needs to hear;
because it is the right thing to do; because without
donations musical culture will atrophy. Motives much
like these prompt us to give $16 billion a year to
waiters and waitresses (more than the annual revenues of
the entire recording industry) and $300 billion a year
to charities. It would not seem hard to improve on the
present system in terms of sheer returns.

Other benefits seem possible. To repeat, copyright
businesses typically have high fixed costs and low
marginal costs; in such sectors discriminatory pricing,
in which some pay more than others, is economically
rational, in that it should lead to wider distribution
of the product, which (presumably) should benefit the
culture as a whole (since more people will be able to
express and satisfy their preferences). Producers
themselves also benefit from the largest possible
distribution, of course.

Despite this logic, discriminatory pricing is impossible
as a practical matter, because, as Amazon has recently
had occasion to learn, buyers hate it when it is imposed
on them by corporations. Voluntary payments offer a way
around this problem; they promote what is in effect
discriminatory pricing (assuming donors get to choose
the size of their 'tip'), running all the way down to
zero, and in a form that no one is likely to object to.
People are seldom bothered when the diner at the next
table leaves a lower tip than they do. (To the contrary,
they are likely to feel better about themselves.)

It is very difficult now to capitalize on the great
opportunities the internet offers to tighten the
connection between artists and their audience, since in
so many cases a corporation ends up in the middle of the
bed. For instance, the more a band knows about its fans
the smarter it can be about planning tours and designing
and distributing merchandise. As a consumer I don't
necessarily want Rupert Murdock to have that
information, but I am less likely to mind giving my zip
code or even email address to an artist that I am giving
actual money to.

Another example of the same effect: There is some
apprehension that the copyright industries will use
encryption and their control of the legal system to
impose what will amount to a 'pay- per- listen' regime
on music consumers. At present PPL is viewed with
extreme alarm by many as the ultimate in corporate
control of the culture. Yet it true that it is good for
artists, and therefore us, to have the most accurate,
resolved, picture of the relation of their art to their
audience. Under a voluntary payment scheme, where
consumers could choose whether or not to enroll in such
a program and revenues went first to the artist, PPL
might be much more acceptable.

Copyright businesses typically have high fixed and low
marginal costs. It is easy to see how voluntary payments
might deal with the latter. How about the fixed costs:
production and promotion? An artist with a history of
attracting significant voluntary payments might be able
to borrow against future proceeds, but other ideas are
possible. We can imagine a site on which a
writer/director/composer/musician describes a project of
personal interest on a website somewhere and names a sum
that will allow the project to be financed; fans make
commitments to the project of choice; when these
commitments pass the threshold sum all the
"micropatrons" are notified and their credit cards
charged accordingly. is an
"evaluation model" that is already online. The theory of
such a system is discussed in detail at

One can sort the sectors of social economies -- or at
least their productive modes -- into command, market,
and gift. Workers in command mode (like soldiers) work
because they are told to; in market mode because they
are paid; in gift mode because they are doing what they
want to be doing. Examples within this culture might be
artists or scientists. In a command economy status
varies by rank; in a market, by income; in a gift, by
professional reputation (usually) or possibly the size
of the population consuming or enjoying the product.

Command economies are predictable and stable but
unproductive, both because they are economically
irrational and learn slowly. Gift cultures, on the
other extreme, are enormously productive, not because
they make efficient use of material resources, which
they do not, but because they tap the potential inherent
in human creativity and passion. They are, however,
chaotic; goods and services are likely to appear and
disappear without warning, which in many contexts makes
their higher productivity purely theoretical. Market
cultures fall somewhere in between, imposing more order
than a gift economy but permitting more unpredictability
than a command economy. Gift economies generate a huge
range of one-of-a-kind products and services, command
economies only a handful, with market economies, again,
somewhere in between.

If we accept that traditional cultures, with their noble
and clerical hierarchies and confining traditions were a
species of command culture, the trend in our time (for
whatever reason) has clearly been from Command to
Market. The fate of socialism emphasizes the point. The
internet appears to be dragging the market culture --
kicking and screaming, in many cases -- through the next
transition, into a gift society. The first illustration
of the point was the rise of Open Source
programming. Voluntary payments may be the second.

The internet's great powers of connectivity and
selection have allowed it to compensate for the chaotic
nature of the Gift economy with a huge range of
inputs. Whatever you want, given a hundred million
sites, or however many there are, someone is going to be
offering it in Gift economy mode, which means with
verve, dedication, humor, and passion, and very
cheaply. This is a difficult package for conventional
market-mode producers to compete with. If you have a
hundred sites offering a given good, all equally
accessible, it no longer matters if one or two disappear
because their maintainers grew bored. There are always
others willing to step in to replace them.

Voluntary payments would seem to be the natural
transaction mechanism for a gift economy. They are
disorderly and chaotic, but they place relationships and
passion at the heart of the producer/consumer
interaction. Given any kind of chance, nothing can stand
against a dynamic with genes like those.

Fred Hapgood is a free lance writer specializing in
business technology issues and trends.

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