Electronic Voting Security Concerns

I've not posted before on electronic voting machine issues, but this is just outright scary:

Upon examining the inner workings of one of the most popular paperless touch screen voting machines used in public elections in the United States, it has been determined that with the flip of a single switch inside, the machine can behave in a completely different manner compared to the tested and certified version.

With such strong incentives to cheat on voting, it would seem that having a clearly verifiable voting process would be something we'd want to have. But, hey, just trusting everyone not to tamper with machines... that could work too. Yikes.

(H/T to /.)

Snakes on a Plane

Entertainment Weekly has a great article about the unique path that next month's Snakes on a Plane took from simple idea to pre-release internet sensation.

Money quote from Samuel L. Jackson, who touches on our recent conversations (here, here, and here) about movie critics:

''Snakes on a Plane doesn't speak volumes about s---. I just hope people go to this film and have a good time. Laugh, scream, freak each other out.'' He also hopes movie critics — who will have to do without advance screenings — will leave Snakes alone. ''Those motherf---ers don't need to watch this. They need to send some 13-year-old kid with f---ing pimples that goes to the mall every Friday to watch movies. I respect the people who are going to see this film, because they know what they like to see,'' he says. ''They like The Texas Chainsaw Massacre. Hostel. Saw. They're not afraid to say they like it. I like those films too. I like seeing people getting f---ed up in strange and funny situations. There's a lot of us out there!''

Choosing Where to Eat and Vacation

It struck me during lunch yesterday that despite many signs that people are generally risk averse (such as their behavior on Deal or No Deal), when making non-monetary choices it seems that people are quite risk-loving. Take, for example, where to have lunch (or what to eat once you've chosen a restaurant). Living in Manhattan with so many restaurants around, I've seen that many people have strict preference to eat somewhere they haven't eaten before; this exploration is all of the fun to them. But why? It's not in the hopes of finding someplace they love and can keep frequenting- they'd rarely come back anyway. They may well know that the restaurant they went to last month has a great dish that they loved, but they'd still rather eat somewhere new. In a classical utility framework, this implies a very, very convex utility curve over meal quality. (I should point out that I am not like this; after a short time in the city, I had identified several places I like to eat. I'd be happy to go to those restaurants all the time, while only occasionally trying something new, in the hopes of identifying another place I could add to my short-list. And, of course, once in one of these restaurants, there's only one or two things I'd order...)

Of course, the monetary stakes are pretty low here; even in the worst case, you've lost only a few bucks and had a less than satisfying meal. Plus, you'll have another meal in a few hours so it's really no big deal. But this behavior also holds with bigger choices, such as the choice of where to vacation. People generally only have the chance to take a vacation a couple of times a year, and the cost of a vacation can be very high. So, you eventually pick somewhere, go there, and have a great time. The beaches are fantastic, the food is good, stuff is cheap, the locals are nice. You have a great time. When do you go back? Probably never. Despite the fact that the cost of a vacation is very high, both in terms of having such a limited number of them and the monetary expense, people tend to keep trying new places.

I guess one utility-theory explanation is that there is, in fact, very diminishing marginal utility to going to a restaurant or a Caribbean island. (And thus, you get a story that the utility function is really concave in that dimension.) Once you've been, it's not nearly as fun the second time. Maybe this is so; but I know that I would have a fantastic time at restaurant X or vacation destination Y. So why not go back?


UPDATE: In comments, Bryce points to his blog. There, he makes a great point that I left out: the creation of memories, which (a) make these things durable goods and (b) gives a very strong argument for first experiences being much more valuable. Presumably, even the memory of a terrible meal has a lot of value. This speaks to the diminishing marginal utility of an experience as the rationale for "experimentation."

I'm not as sure of this logic when it comes to a vacation though. I wonder, are people that return to a vacation spot more likely to have done it because they liked the place or because they didn't do something the first time?

Kazaa Settlement and the Future of File Sharing

According to the AP (through the NY Times), Sharman Networks, the makers of the Kazaa file sharing program, have reached a deal to settle its piracy lawsuits with the music and movie industries. Sharman Networks's Kazaa (and the FastTrack network it runs on) has been on the world's major peer-to-peer (P2P) networks in the post-Napster period. Although Kazaa did not catch on immediately after Napster was shut down, it was its first major successor. Sharman Network used to brag that over 350 million copies of its Kazaa software had been downloaded, but that claim is no longer on its webpage. Although not as popular as it once was, the FastTrack network is still one of the world's largest. (See slyck.com's daily listing of the number of useres on the top P2P networks.)

Sharman will pay $115 million to music labels and movie studies as a result of the settlement, and has also agreed to try and stop the proliferation of copyrighted music and movies using its programs. This, though, is likely a meaningless condition because the thing that has allowed Kazaa to be active for so longer after Napster was shut down is the fact that it is a decentralized P2P network. This means that the FastTrack network protocol is out there, and Sharman can't simply shut it down, or control it directly. If users want to use other FastTrack clients to "share" and to download files, nothing is stopping them.

It's possible that Sharman has agreed to play an active policing role, though this is not stated in the article. They could, conceivably, monitor the data transmissions on the network and then attempt to corrupt that data in ways that would make the experience of trying to download materials using FastTrack slow and annoying. This, of course, would likely annoy and drive away its users, which would severely harm the plan of transitioning to a legal service.

Of course, ultimately this does not matter at all for file sharing. The RIAA and MPAA are just chasing a white rabbit here by going after the companies that started these networks. The networks can be used without the founder’s software (unlike Napster), but even more importantly, new and better networks will just pop up to replace them (like after Napster was closed and Kazaa came onto the scene). They will never catch the rabbit. The only was to stop (or limit) piracy is to compete with P2P networks and win away users. That means providing legitimate services with a full catalog of available titles at a reasonable price. It needn’t be free; it only needs to compete with “free”. Until that time, there will always be an enterprising software engineer out there willing to provide a better network to hordes of users who want one. The RIAA and MPAA seem to be trying to turn back the clock to a world where this technology is not out there; that can’t happen. They need to accept the fact that the conditions that led to the profits they earned in the mid-90s are gone, and adapt. Doing so can lead to offerings from the industries that win consumers away from file sharing, improve profits for the industry, and provide a better experience for users.

I should also point out that the industry’s strategy of suing its users en masse every so often also seems to be fruitless. While the program seemed to work at first (it initially made a significant dent in the number of users on P2P networks), it seems to have no chance of eliminating piracy, as file sharing networks are much larger than ever. For whatever reason, users have not been scared away.

Maybe if the RIAA/MPAA would offer a useful alternative to consumers, they would be able to increase profits while simultaneously winning users away from P2P. Scaring them has not worked; instead try enticing them way with a better system. The nice thing about P2P architecture (from an industry point-of-view) is that if you remove the users, the content is taken away as well. If they can just offer a carrot instead of a stick, that white rabbit just might come to them.

A Partial Answer...

to my movie critic question ("why isn't there a market for a `regular guy' (or girl) film critic?") is provided by Rod Dreher, a former critic for the NY Post. In a response to the NY Times piece I discussed last week, he argues that while he was paid to be a "consumer guide", he instead behaved as a "pure critic":

A final, minor point: because professional critics see everything for free, we can be guilty of overpraising small, worthy films. After I quit reviewing professionally, it startled me to think about how many movies I'd given three stars (out of four) to that I wouldn't mind renting on DVD, but that I'd never pay $10 to see. I think a pure critic would have said honestly what he thought about the movie, and not thought of his job as having anything to do with being a consumer guide. But I was not paid to be that kind of critic; I worked for daily newspapers, and people had a right to expect me to help them figure out if this or that movie was worth the price of a ticket. A more honest and truly useful ratings guide would have been to chuck the star system, and do one of three choices: "See it," "Skip it," or "Wait for the video."

So maybe there is a market, but the critics don't live up to the deal. Probably not. The economist in me tells me that if the problem was the critics, that they'd be replaced with critics who do it "right."

Still, the post is worth reading and lends further insight into the relationship between films, critics, and viewers. Also, a final note from Rod suggests that maybe we do get the "average Joe" information from our current crop of critics:

Every now and then I'd run into somebody who, upon finding out what I did for a living, would say, "If the critics loved a movie, I stay away from it, and if they hated it, I figure it's something I'd enjoy." My stock response: "See, we are helpful to you after all."

Hit tip to The Opinionator. ($ sub. req.)

Seigniorage

Macroeconomists are often troubled by the inability of central banks to avoid the temptation that printing and issuing paper money offers in the way of seigniorage, the "earnings" a government gets by printing, say a $100 bill for a cost of 50 cents and then spending the $100. The major problem, of course, is that this can lead to rampant inflation, as time-inconsistent governments print money to earn seigniorage, thus raising inflation and inflation expectations. Thus, in the future the government must print even more money and keep inflation growing faster to keep earning seigniorage. This cycle can lead to tremenous inflation episodes, such as the current situation in Zimbabwe.

But what happens if you could print money without harming the value of your currency? Seems great, no? But how would one do that?

An article in the NY Times Sunday Magazine yesterday suggests a way to do it: counterfeit someone else's currency. The article focuses on evidence that North Korea has been printing *lots* of counterfeit U.S. currency over the past several years. Apparently, the Secret Service has removed $50 million worth of "supernotes," the term for the nearly flawless counterfeits in question, from circulation. (And presumably, there are plenty of notes out there that have not been confiscated.) These supernotes are printed using intaglio printing, a method of printing which is generally only used by governments to print money, using specialized presses that are generally only available to governments.

The article suggests that U.S. government officials are taking the issue very seriously, and some senior members suggest that at times throughout history, counterfeiting by a foreign government has been seen as an “act of war" and that "the counterfeiting could be construed by some as a hostile act against another nation under international law and added that the counterfeits, by creating mistrust in the American currency, posed a `threat to the American people.'"

Although it seems unlikely to me that North Korea (or anyone else) would be able to circulate enough counterfeit money to really have an impact on the money supply in the U.S., this does strike me as a very serious problem. Is it an act of war? At first glance, that seems like a stretch, and I certainly don't think that military action would be an appropriate response to something like this. But it has the potential, if ramped up to a large enough degree, to have very serious consequences.

Concert Pricing Update

Billboard gives a mid-year concert update:

In general, the North American touring industry is maintaining a healthy pace. Gross dollars for January-June of 2006 are up 24.6% from the same period last year, driven mostly by the tours cited above. With attendance up just 5.4%, high ticket prices have helped boost the increase.

Worldwide, revenue is up 13.3% and attendance up 2%.

We've talked about concert pricing a lot recently. (Go here, here, and here or visit our good friend Bryce here and here). It's become commonplace to assign the blame for the increase in concert ticket prices to file sharing and a decline in CD sales. As I've argued in those previous posts, I don't think that argument holds water and instead, I blame eBay and the like. But there's no doubt that prices are rising.

Long Tail Books

Chris Anderson's The Long Tail: Why the Future of Business Is Selling Less of More and The Long Tail blog have focused on the idea that due to technological changes in recent years, big money in the future will come from selling very little of a lot of things. From Chris' blog FAQ, this is the idea:

The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of "hits" (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-target goods and services can be as economically attractive as mainstream fare.

One example of this is the theory's prediction that demand for products not available in traditional bricks and mortar stores is potentially as big as for those that are. But the same is true for video not available on broadcast TV on any given day, and songs not played on radio. In other words, the potential aggregate size of the many small markets in goods that don't individually sell well enough for traditional retail and broadcast distribution may rival that of the existing large market in goods that do cross that economic bar.

So the idea is that in the past, only the orange part of the distribution sold enough to get brought to market, but now we get to see the little bit of everything that is potentially out there. (File sharing is a good example of this, as it helps spread "news" about artists who are far out in the "long tail." Note that the link to the paper in the post no longer works. This one does. Here's a link to a paper that argues that file sharing does not really fit this story.)

Anyway.... the NY Times recently reported on the long-tail coming to book publishing. They cover the growing number of firms that allow users to publish very small book runs (even one book, potentially). These firms generally provide the user with a free copy of book layout software. (Professional versions of print layout software from Adobe and others cost hundreds of dollars, or more.) Once the book is designed and layed out, it is uploaded to the service, and anyone can log onto the site and order a copy of the book. Naturally, pricing depends on the size of the book: according to the Times article, at Blurb.com it costs from $29.95 for books between 1 and 40 pages long and gets as much as $79.95 for books between 301 and 440 pages.

Now, you might ask, who's going to pay $80 for someone's amateur novel or a collection of photgraphs of their cat? Very, very few people; but that's the point. In the past, if there were only 2 people interested in a book, you couldn't get it published; it would have cost thousands of dollars. But now, we can all publish our own stories, family histories, or whatever and even if there is only one person interested in reading it, it can be produced for a more or less reasonable price.

Movie Downloads to DVD

CinemaNow, the uninsipiring legal download service (for movies), has announed a "Burn to DVD" program for a select number of films. The service lets you take a movie you've purchased through CinemaNow and create a DVD with the film on it, so that you can now watch the film in your living-room TV (or wherever), rather than watch it on your computer monitor. Films available to "Burn to DVD" will take longer (2-3 hours rather than 1-2) to download, because they need to be converted to an MPEG format that the DVD can read, and it seems that it includes all the content on the physical DVD (menus, extras, etc.).

The selection of films isn't great, and certainly does not include the latest sets of releases, and pricing is that great either. (My random choice, BubbleBoy, costs $14.99 either through Amazon or through CinemaNow. BTW, did you know Jake Gyllenhaal was in that? Of course not, no one watched it.) So, it doesn't sound like such a great service, does it?

Well, maybe not now, but this is the first step in an inevitable march to on-demand purchases of films, similar to what has happened with music. iTunes hasn't killed the CD (and neither has file sharing), but there is an ever-growing market of people who want to get songs digitally. The same thing will happen with films, and while CinemaNow doesn't look like a great deal today, something like it will eventually get new home video releases (and maybe even theatrical releases) someday, and offer pricing and video quality that makes it compatible with DVDs in the same way MP3 downloads compete with CD sales.

Apple showed the music industry that the way to compete with illegal file sharing was to offer usable paid content at a reasonable price, and while this is no big deal now, neither was iTunes when it first launched.

More on Movie Critics

A while back, I talked about how movie studios have started avoiding preview screenings for critics, thus presumably avoiding negative reviews before opening night. This sparked a comment from dave, wondering why movie critics and movie goers have such mis-aligned tastes. That is, why isn't there a market for a "regular Joe" critic who likes White Chicks and Underworld: Evolution, since the movie-going public seems to like these films?

Today, A.O. Scott, a critic for the NY Times, addresses this question in a column which highlights the difference between the critical response to "Pirates of the Caribbean: Dead Man’s Chest" and that of the public, which launched it to the highest-grossing opening ever. (Even beating Aquaman.) Scott complains:

I must face a frequently — and not always politely — asked question: What is wrong with you people? I will, for now, suppress the impulse to turn the question on the moviegoing public, which persists in paying good money to see bad movies that I see free.

He then asks (and answers):

So why review them? Why not let the market do its work, let the audience have its fun and occupy ourselves with the arcana — the art — we critics ostensibly prefer? The obvious answer is that art, or at least the kind of pleasure, wonder and surprise we associate with art, often pops out of commerce, and we want to be around to celebrate when it does and to complain when it doesn’t.

But the original question still stands: why isn't there a market for a "regular guy" (or girl) film critic? Of course, you can peruse message boards and blogs, but shouldn't the New York Post (or someone similar) carve a niche with a critic with tastes similar to those of the average American? Let the New York Times have their haughty-taughty (is that a word?) film critic, and give the regular, subway-riding New Yorkers a film critic they can relate to? What am I missing? Why doesn't this happen?

A New Weapon in the Fight Against Piracy:

Children!

According to the NY Times, authorities in Hong Kong have commissioned a group called the "Young Ambassadors," to be made up of up to 200,000 youths, to visit message boards and web sites in search of available copyrighted material. Their duty will then be to report the locations of these materials to the authorities who will then pass that information onto the appropriate organization (music industry groups, film group, etc.). Apparently, all members of the Boy Scouts and other young organizations in Hong Kong are expected to participate in the program.

While I admit this is a little creepy (and I'm sure this wouldn't fly in the US), if the youth of Hong Kong actually do this, it will be effective. According to the article, a pilot program involving 700 youths identified 800 sites making copyrighted material available over BitTorrent. Industry groups simply don't have the resources to span the internet in search of pirated materials, as the web is too big a place and actual workers cost money. But if they harnass the power of thousands of teenagers who are going to be surfing the web anyway, they'll do ok.

But the image of Boy Scouts sitting in front of a computer hunting down digital pirates is a bit too much for me.

Incentives Matter

The New York Times today reports on the beginning of a crack-down on Internet gambling. Yesterday, federal authorites arrested David Carruthers, the CEO of BetOnSports, a Costa Rican-based company that is publically traded in Britain, on charges of "racketeering conspiracy for participating in an illegal gambling enterprise." Carruthers was arrested while in Dallas-Fort Worth International Airport while on his way from London to Costa Rica.

I don't know much about the legality of internet gambling in the US. (I know that gambling is illegal in the US, that these companies set up shop in countries where gambling is not illegal, and that the legal issue is whether or not they violate US law by accepting bets online that originate in the US.) But what I do know is that incentives matter; this is the final paragraph of the Times article:

Sue Schneider, publisher of Interactive Gaming News, an online magazine focusing on the Internet casino industry, said the charges would have at least one major chilling effect on the industry’s officers. “I imagine the number of executives coming through the U.S. on connecting flights will come to a screeching halt,” she said.

So do I.

Paperclip Update

A while ago, the internet was abuzz with the story of Kyle McDonald, a Canadian who was attempting to trade a red paperclip for a house. Not directly, mind you, but in a series of trades that he would "win" by enough to eventually end up with a house. (Bryce first brought this to my attention.) It seems that Kyle has finally succeeded, as he now has a house in Kipling, Saskatchewan.

According to the Royal Bank of Canada Financial Group, the average two-storey home price in Saskatchewan in the first quarter of 2006 was $175,000 (Canadian, I guess). So that's not a bad set of trades. Of course, as his plan got into the press, people were no longer just trading for the good, but also for the experience of being involved in his scheme. All in all, though, that's a pretty nice rate of return on his investment...

[Another interesting note in all of this is that part of McDonald's final haul includes "$200 in Kipling Cash" which "can be spent at any local Chamber of Commerce business." So that's another place in the world using a non-official currency. With only 1,000 residents in Kipling, it surely isn't used to the degree that private monies were used in Argentina recently, but it is still noteworthy.]

(h/t to David Pogue, NYT)

How Much Does Your Birthday Matter?

Freakonomics addressed this question recently, focusing on the birthdates of elite soccer players. The hypothesis is that children whose birthdays cause them to be old in their playing cohort will be more developed and therefore the better players in their cohort. As a result, they receive extra training, attention, and coaching, and are therefore more likely to develop into elite professional players. (Baseball and hockey were taken on by others in response to Levitt and Dubner.)

So maybe being born "old" makes you more likely to be a star athlete. But does it make you more likely to be a Congressman (or Congresswoman)? For some reason, the Washington Post's reports of congressional votes can be sorted by zodiac sign, and it has been pointed out that there are 55 Cancers in Congress and only 24 Tauri. The Agitator raises the question of how likely it is to see this (here and here), if birthdays were random, and the answer is "not very." Here's one commentator's take on why we do see this:

..because of the cut-off levels for schools, Cancers enter a grade at an older age then a Taurus would. Thus, they have experiences more likely to influence someone into politics. These include better performance in sports, better grades, more socially out going, etc. then those in their peer group.

Here's the full list of astrological signs in Congress, thanks to the Washington Post:

Now, school cut-off dates vary from locale to locale (just as soccer-age cut-off dates vary from country to country), but it does seem that a disproportionate number of congressmen and women were born between May 22 and October 23 (the Gemini to Libra range). However, I think most cut-off dates are in the fall (September or October- I think my school was Jan 1, because my early Feb. birthday made me old in school). So, rather than members of Congress being older in school, they would tend to have been younger in school. That is, unless cut-off dates used to be in the spring, say 40 or 50 years ago when the average member of Congress would have been in elementary school.

So that's probably not the story here. Some other thoughts?

Free Gas

Allstate Insurance gave away free gas today in Milwaukee, WI as a reward for Milwaukee ranking as the #1 mid-sized city in Allstate's safe driver list. The AP/NY Times reports that the giveaway (predictably?) resulted in long lines, fights, disorderly conduct arrests, and hospitalized police officers. People started lining up before midnight for a service that started at 6am, and the lines got so long that some residents had trouble getting out of their driveways.

Gas prices in Milwaukee average $3.17/gallon right now. Even with a 20 gallon tank in your car (and it's probably 12 or 15 gallons), if you timed it perfectly, so that your tank was empty, you'd be getting onyl $63.40 worth of free gas. If, more likely, you got 10 gallons of gas, that's $31.70.

If I announced that I was doing the same thing, but instead of giving out gas, was going to give $50 to each car that came, do you think there would be more, fewer, or the same number of people willing to wait more than 6 hours overnight (and sleep in their car)? I think there'd be fewer. To make the exercise easier, suppose I gave out the exact amount of money needed to fill your tank at a gas station just around the corner from me. More, fewer, or the same number of takers? Remember, this is more valuable, because you can use the money on anything, not just gas. (Although gas consumption is probably inelastic enough that this difference is negligable.) Still, I'm betting there would be far fewer people. (Unless I pitched it as a "free gas" giveaway....)

The Only Way to Google This Post

...is to search using the Google search page, at least according to Google themselves.

The LA Times recently ran a story on the Merriam-Webster Collegiate Dictionary adding the word "google" to the 11th edition of the dictionary. The article focuses on the trademark concerns that arise when a brand name starts to creep into everyday use as a generic word. Everyone has asked for a "Kleenex" or to have something "Xeroxed" without caring what type of tissue paper they got or if the copy was made on a Ricoh. And now Google is concerned over the usage of "google" as a verb, because a trademark that becomes genericized is not necessarily afforded the same legal protection (see "aspirin" or "escalator").

As cited in the article, Google's 2005 annual report focuses on this danger:

We also face risks associated with our trademarks. For example, there is a risk that the word “Google” could become so commonly used that it becomes synonymous with the word “search.” If this happens, we could lose protection for this trademark, which could result in other people using the word “Google” to refer to their own products, thus diminishing our brand.

The Merriam-Webster dictionary does reference the word as being derived from Google, though it's not clear from the article (I haven't seen the dictionary) if the word is defined as "searching the internet" or "searching the internet using the Google search engine." I imagine that this distinction would be very important in determining if the word is a generic one, or specific to the brand. Interestingly, the Oxford English dictionary has added "Google" (capitalized) as a word in its most recent addition. I think the capitalization of the word certainly suggests much more strongly that usage of the brand is implied in the usage of the word.

That said, it is a nice problem to have. I'm sure that ex ante Google would gladly accept the problem of their brandname being in danger of becoming a generic verb used by everyone over being specific to a product that nobody uses. Of course, becoming a generic word does not necessarily mean that you've dominated your market. Tivo, for example, has been fighting a similar problem, and they haven't dominated anything, except for linguistic usage.

Perhaps the guys at Language Log will chime in at some point; I searched over there quickly and didn't find a posting on "google" as a dictionary word. What was interesting to me, though, was that they seem to use "searched on Google" or "used Google" rather than "googled." See here and here.

Quote of the Day

From Stephen Colbert:

More and more companies are cutting pensions. The good news is they're also cutting health insurance, so you won't live long enough to be affected.

Death-Knell for "Sanitized" DVDs

A ruling was handed down in Hollywood's case against companies that release "censored" versions of Hollywood films. From Reuters:

Senior U.S. District Court Judge Richard Matsch came down squarely on the side of the Directors Guild of America and the major studios in his ruling that the companies must immediately cease all production, sale and rentals of edited videos. The summary judgment issued Thursday requires the companies -- Utah-based CleanFlicks, CleanFilms and Play It Clean Video, Arizona-based Family Flix USA and the separate entity CleanFlicks of Colorado -- to turn over all existing copies of their edited movies to lawyers for the studios for destruction within five days of the ruling.

Utah's CleanFlicks, which describes itself as the largest distributor of edited movies, through online sales and rentals and sales to video stores in Utah, Arizona and other states in the region, said it would continue its fight against the guild and the studios. CleanFlicks and the others make copies of official DVD releases and then edit them for sex, nudity, violence and profanity.

The companies purchase a copy of the original DVD for every film that they then edit (to remove "offensive" material) and sell, and anyone buying the film from a company like CleanFlicks would get both the original DVD and the censored version. The idea was that this shielded them from copyright infringement and piracy laws because the original copyright holder was getting their normal share. (Presumably, they argued that the original copyright holder was getting more as a result of their business, since some people who bought a copy of the "CleanFlicks" version, and thus also the original version, would not have bought the original version otherwise.)

The judge came down hard on these companies, ruling that "(t)he right to control the content of the copyrighted work ... is the essence of the law of copyright."

Iterestingly, this seems clearly not to be a case of Hollywood trying to increase profits; based on the business plan of bundling the edited copy with a original, their DVD sales would necessarily not fall. (It's possible that theater sales might drop because people wait for the "clean" DVD.) Rather, in this case, the Directors Guild of America was out to protect the integrity of their work, not their profits. The president of the DGA is quoted as saying:

As creators of films, we oppose giving anyone the ability to alter in any way they choose, for any purpose, and for profit, the content of a film that we have made, often after many years of work. Directors put their skill, craft and often years of hard work into the creation of a film. These films carry our name and reflect on our reputations. No matter how many disclaimers are put on the film, it still carries the director’s name. So we have great passion about protecting our work, which is our signature and brand identification, against unauthorized editing.

Since the ruling does not seem to be posted on the US District Court website, here is another quotation from the ruling cited in the Reuters article:

Whether these films should be edited in a manner that would make them acceptable to more of the public playing on a DVD in a home environment is more than merely a matter of marketing; it is a question of what audience the copyright owner wants to reach. This court is not free to determine the social value of copyrighted works. What is protected are the creator's rights to protect its creation in the form in which it was created.

What really happened to Ken Lay?

Not surprisingly, conspiracy theories abound as to the recent death of Ken Lay, which will make it difficult, if not impossible, for authorities to seize his ill-gotten assets. It's not that I believe any of them, but they are amusing. This is my favorite:

As we all know Ken Lay, was moonlighting as senior citizen porn star Dave Cummings... Ken Lay is alive and very well and will assume his Porn Star alter-ego full time with all of us assuming he is six feet under. This makes sense as surely even Bruce Wayne would become Batman fulltime if Wayne Industries were to go bankrupt in an accounting scandal.

World Cup Final

I've been tracking win probabilities for the World Cup since the quarterfinals, using ELO rankings, and so far, the ELO rankings have called 4 of the 6 games (failing to predict Italy's win over Germany in the semis and France's quarterfinal win over Brasil). So as we head into the final weekend, here are the updated ELO rankings, following the method outlined here to update after the semi-final games:

• Italy (2044)
• France (2042)
• Portugal (1979)
• Germany (1913)

Keeping in mind that Germany gets a 100-point home field bonus in calculating the win probabilities, this generates a win probability of 55% for Germany in the third-place match and a win probability of 50.3% for Italy in the final.

Italy's advantage in the ELO rankings stems wholly from their 2nd goal in the 120th minute after Germany went all-out offensive. That extra goal gave them a two-goal margin, which upgraded the "K-factor" (see the original post) for that match. Without that goal, their ELO ranking would be 2026, and France would have a 52% win probability. Either way, it looks like it should be a good match.

(FYI, Tradesports.com has Italy at 56.5% and Betfair.com has Italy as a 5/4 favorite, or 55.6%)

The Pricing Impacts of Network Effects

I've talked before about the foolishness of the next generation DVD war, and a recent article at eetimes.com highlights the first salvo in the war between HD-DVD and Blu-Ray. They cite a study done by a analysis firm (iSuppli) which finds that Toshiba is pricing its introductory HD-DVD player (the HD-A1) far below cost.

The HD-A1 retails at $499 and iSuppli estimates that the parts in the machine cost $674, while other costs associated with the device (packing, cables, remote control, etc.) push the total cost of a unit over $700. So why is Toshiba willing to price this thing over $200 below cost? (And that's just at retail - surely the wholesale price Toshiba receives is even lower.) The answer is simple: the loser of the next-gen DVD war ends up with nothing, so Toshiba needs to bank on early adopters tipping the market to HD-DVD. If lots of people buy HD-DVD players, then that will lead to more HD-DVD software, which will increase the value of the players, et cetera.... But it's a risky gamble (and one that the makers of Blu-Ray players, which are priced near $1000, don't seem to be taking).

Coke Trade Secrets Stolen

The Associated Press is reporting that three people have been arrested after stealing trade secrets from Coca-Cola and attempted to sell them to Pepsi for $1.5 million. The plot involved the theft of trade secrets and product samples (of an as yet unreleased Coke product) and one of the three alleged conspirators is a Coke employee. According to the article, after being contacted with an offer to buy the documents and samples, Pepsi contacted Coke and the FBI, which lead to a sting and the arrest of the three. The recipe for "Coca-Cola Classic" was not among the documents stolen.

What's strange about this story to me is what exactly Pepsi would do with this information. Clearly, the recipes for Coke are hugely valuable to Coke and, if released, would allow another producer to replicate Coke and sell it. But would Pepsi want to do that? Would they release a new version of Pepsi that tastes just like Coke? Release the secret formula into the public domain? Of course, since Pepsi voluntarily contacted Coke and the FBI, they didn't want these secrets, but hypothetically what would they do with it?

This just wouldn't seem to help them. If "Coke" entered the public domain and anyone could produce it, then presumably many would and Coke would be forced to reduce their prices, which would likely force Pepsi to do the same or risk losing lots and lots of sales. [But your supermarket brand cola would probably taste a lot better...] Pepsi is being played off as acting ethically here, which I guess they are, but it's more a matter of Pepsi following its profit motive to maintatin the very profitably duopoly that they have with Coke than any corporate desire for "fairness" or something like that.

Farm Subsidies

The LA Times today argues that, in order to the jump-start the stalled Doha trade talks, the US ought to unilaterily drop its farm subsidies. Since the US's farm subsidies are widely used in intro economics courses as an example of how government regulations distort markets and cause deadweight loss, this proposal is one that most all economist should be behind. Money quote:

Who does the U.S. trade delegation represent when it refuses to budge on farm subsidies and market access? Certainly not American taxpayers or consumers. Farm subsidies cost taxpayers about $19 billion last year. For their money, consumers got the privilege of paying more for some food because farm supports (and quotas on some imports, such as sugar) distort markets.

They go on:

Ending these subsidies and lowering agricultural tariffs would boost the U.S. economy, eliminate waste and help farmers in the Third World trade their way out of poverty. It's a shame Washington thinks that its protectionist farm policies are something to be surrendered only grudgingly, and only if others do so. Good riddance, we say.

I can't argue with this, especially in light of the recent Washington Post report, cited in the op-ed, that billions of farm subsidies go to people who don't even farm....

World Cup Update

Thanks to the long weekend, I've not been around much lately, but I thought it would be worthwhile to check in on how the ELO rating system did in predicting the quarterfinals. If you include the 100 point home field bonus for Germany against Argentina, then it nailed 3 of the 4 finals, with only France's dominating performance against Brasil going against what the system saw.

As for yesterday's semi-final, Italy went in at 1989 (based on my calcs, the site hasn't updated) with Germany at 1969 (plus a 100 point home field advantage). This yeilded a win probability for Germany of 61.13. However, ELO didn't guess right, as Italy advanced on a spectacular goal in the 128th minute. (Plus another in the 130th...) Italy's victory brought them up to an ELO of 2067.

As for today's game, ELO gives Portugal a ranking of 2009 and France a ranking of 2012, making for a virtual 50-50 toss-up (50.037% for France). So it should be an exciting match....