Ars Technica’s Nate Anderson has written an excellent history of how the content industry has fought against pretty much every technological advancement over the past 100 years for fear it would end creative expression forever. As we know this isn’t true. Rather, technology helps increase the market for these creative works (and other industries) by decreasing costs and increasing efficiency. It is much cheaper and easier to create and distribute music than it was 10 years ago, let alone 100 years ago.

Anderson profiles the content industry’s fight against the gramophone and player piano. John Philip Sousa campaigned to Congress to ban these evil machines for replacing live performances, not recognizing that home recordings might increase the demand for those live performances. This gave birth to the compulsory license system, where the government set rates sheet music must pay to songwriters, we have still to this day, though it has been vastly expanded.

Photocopiers spelled doom for the print industry, with UCLA law professor Melville Nimmer saying “the day may not be far off when no one need purchase books.” While the U.S. and its courts upheld a fair use right to copying, Canada and other countries must pay royalties to collection agencies for every copy. Canada pays the same tax on rewritable CDs and iPods because they might be used for pirated content.

Movie companies famously referred to the VCR as the “Boston strangler” as it killed the movie industry. Universal sued Sony over Betamax all the way to the Supreme Court to ban the use of home recording. Once found legal, movie companies decided to sell copies of their own movies to home viewers, a revolutionary practice that led to the multi-billion dollar home video and rental market.

Pretty much every expansion into digital media has been fought tooth-and-nail by the content industry, from Napster to DVR to the iPod.

Anderson also left out some other highlights. Cable TV, when originally introduced, featured almost exclusively pirated content from network television. This allowed cable television to expand far enough that it could afford its own programming. Even the movie industry began by fleeing New York to Hollywood to escape enforcement of Thomas Edison’s patents and the high prices he charged to anyone wanting to make movies.

Presently, the DMCA makes sure technological innovations are few and far between to help the content industry.  While CDs were released without DRM and thus able to be ripped onto computers and people’s iPods, DVDs are copy-protected and thus illegal to copy in anyway. Even though it is easy to do so, no software or hardware can be released that can take advantage of people’s massive DVD collections.  Even though the content industry claims it would never sue to ban innovation, the industry has done so several times, and won these cases, holding back technology and innovation that consumers want and could do more to help expand the content market.

Media and software companies release reports that piracy costs them billions of dollars, destroying their business, funding terrorism, or hurting poor farmers. These companies lobby governments to pass laws, sue fans in court, or ask people to spy on others in order to prop up business models that are becoming obsolete. Companies should stop fighting piracy and treat it like any competitor - by competing and out innovating file-sharing services to provide a better value allowing everyone to make more money.

Matt Mason promotes this in his book, The Pirate’s Dilemma, calling piracy a sign of innovation as pirates experiment to make processes more efficient.

Some of America’s greatest innovators were thought of as pirates. When Thomas Edison invented the phonographic record player, musicians branded him a pirate out to steal their work and destroy the live music business, until a system was established so everyone could be paid royalties. Edison, in turn, went on to invent filmmaking, and demanded a licensing fee from those making movies with his technology. This caused a band of filmmaking pirates, including a man named William, to flee New York for the then still wild West, where they thrived, unlicensed, until Edison’s patents expired. These pirates continue to operate there, albeit legally now, in the town they founded: Hollywood. William’s last name? Fox.

New technology has repeatedly challenged media companies, from Edison’s phonograph to television to cassette tapes. After lawsuits attempted to quash the innovation, media companies embraced the new technology and found new revenue streams, making more money as a result. The home video market Hollywood so desperately defends now would never have existed had Universal and Disney’s lawsuit against Betamax succeeded. Instead of suing file-sharing networks, media companies need to embrace the new technology as a new way to make money.

The current state of media and software is quite good. Media companies are making more money every year. Even the music industry is making more music while more people are listening to music. The recording industry is plummeting at a rate so fast piracy cannot be the sole factor, as studies have shown.

But piracy has become an obsession for media and software companies, hurting themselves and their paying customers with DRM and restrictive policies that limit the value of their products. Microsoft, Google, and Major League Baseball have all discontinued DRM serviced, meaning people who legally paid for goods no longer get to use them while pirates continue to download DRM-free goods for nothing.

Piracy offers a compelling alternative. Piracy offers unlimited free downloads of an almost complete collection of every movie, song, TV show, book, or game ever made using a variety of easy to use programs. Pirated content has no DRM, meaning you can put your music and movies on every computer and portable device you own. On the down side, pirated content is has unreliable quality and inconsistent download speeds, but since its free, these are minor negatives.

Why should someone pay for a service with less services?

Media and software companies need to recognize piracy is not going away - it’s a competitor. No matter how many lawsuits the RIAA, MPAA, and BSA file, piracy grows. These lawsuits increase publicity for many sites and services, working against the lawsuit’s purpose - Pirate Bay, the leading BitTorrent tracker, is now one of the 100 most trafficked websites thanks to publicity from these lawsuits. And for every file-sharing service closed down, dozens more pop up. File-sharing is too useful and thus valuable.

To compete, media and software companies will need radical changes to their business models. Techdirt’s Mike Masnick constantly refers to leveraging infinite goods to sell scarce goods.

In a competitive market, the price of a good is always going to get pushed towards its marginal cost. That actually makes a lot of sense. As competition continues, it puts pressure on profits, but producers aren’t willing (or can’t for very long) keep selling goods at a direct loss. Sunk (or fixed) costs don’t matter, because they’ve already been paid — so everything gets pushed to marginal cost.

Movies, music, and software have high upfront costs but negligible reproduction costs - it’s as simple as copy and pasting a file.

This means leveraging infinite goods to sell scarce goods, like concert tickets, collectable merchandise, or advertising (people’s time and attention is very limited). $20 for DVDs and CDs worked under the old, obsolete business model. The new media economy requires new business models that offer more value to consumers. Plastic discs don’t offer $20 of value anymore, meaning new price models and revenue expectations need to be developed. Just because the recording industry used to be making $10 billion a year doesn’t mean is deserves to always $10 billion. As Masnick points out, should the automobile industry be blamed for putting horse-drawn carriages out of business? The industry has to innovate and adapt to market forces to continue making that money. That’s how capitalism works.

Several progressive artists and developers are experimenting with new business models. Radiohead’s pay-your-own price for their new album was a good start. Trent Reznor of Nine Inch Nails earned $1.6 million in one week selling special editions of his new CD, a CD that you could also download for free. Indie record label Fueled by Ramen used viral marketing to build valuable brands around its bands rather than relying on disc sales. The potential for rewarding business models exists, but will require risk and experimentation and an understanding of the evolving marketplace. Media and software companies need to recognize what their customers want and give it to them. Suing isn’t the answer. Embracing is. And that’s how both piracy and business can win.