08 January 2009

A Publishing Squeeze (4)

[continued from 06 Jan 2009]
The fourth common factor in the entertainment/publishing industry's problems is, in a way, a consequence of the third one. It is not a logically necessary consequence... but, in terms of human behavior, it is probably an inevitable one. The fourth common factor is the complete absence of the fourth physical dimension in considerations of entertainment/publishing profitability and money flows: That is, time is always treated as irrelevant in the modern system.

An example from basic, classical thermodynamics casts a lot of light (not to mention some heat and maybe even some sound) on this kind of failure.7 Hopefully, this explanation will show more of the light than the shadows. The three laws of thermodynamics state, in a nonmathematical sense, that:

For any reaction in a closed system at equilibrium:
1. One cannot increase the net energy of the system,
2. One can only avoid loss of net energy of the system if the system is at absolute zero, and
3. One cannot bring a system to absolute zero, nor maintain it there.8

Which of these elements is the most important — particularly when analogizing to economic and financial areas? Well, it clearly isn't the third one; it's certainly possible to destroy an economic system entirely, such that any successor system has little or no basis in preexisting systems. Consider, for example, Shostakovich! The second one seems self-evident as soon as one acknowledges that no economic or financial system ever reinvests 100% of all revenues forever; eventually, employees have to be paid, investors want return on investment, etc. The first one, then, by process of elimination, must be the most important. That inference, though, is incorrect; the zeroth statement — that is, the underlying definition of preconditions — is the most important, for two reasons.

  • No economic system — and darned few thermodynamic systems — are truly "closed." Consider, for example, a relevant ecosystem. It is always obtaining some energy inputs — sunlight, even 40K decay heat — and a sufficiently large subset to constitute an ecosystem is also both receiving and losing matter through rainfall and other fluid flows, erosion and its complement chelation, and so on. Even in the laboratory, we cannot create a perfect insulator. It may be a good enough insulator so that we can't measure energy loss/gain with current instruments, but it is not nonzero, and therefore not truly closed. The economic analogue of this within entertainment might be, say, the constant crossfertilization of entertainment media by both each other and by events occurring outside of the industry resulting in new entertainment products and altering the "ecological" value of existing entertainment products.
  • Neither is any system predictably at equilibrium at arbitrary time t, such as the moment one chooses to measure a thermometer, or the end date of a royalty period or financial reporting period. One need not go to the extremes of the strong statement of Heisenberg's principle9 to find counterexamples in the physical world; just noting the undeniable existence of MRSA is enough. The returns system, all by itself, demonstrates that publishing is not at equilibrium... at any time t.

See? I managed to express that without resorting to mathematical symbology!

What this really means is this: That no calculation of risks, rewards, returns, or anything else in publishing can properly be compared to any such calculation from outside of publishing — not even from within closely-related systems like popular music, and quite probably not even across any of the niche boundaries within publishing. And this is not becaused publishing (or its niches) are closed, and therefore in different energy (financial) considerations; it is because they are not.

All of this consideration that bounces around the outside of mathematical representations of the universe has two other critical implications for the entertainment/publishing industry. The first — and it is one that I must largely dismiss for purposes of this series of entries, because it is even more difficult to express than any of the underlying math for "simple" particle systems — is the scalar measurability assumption built into contemporary definitions of "profit." Put another way, the need to express "profit" at any time t implies both precision and accuracy in the ability to measure profit... and when one is dealing with culture and the arts, that ain't too possible. The second, though, is much more relevant, while being much more ignored by the industry: The cognitive dissonance of the simultaneous existence and chaos of the long-tail phenomenon, especially as the nature of "selling" changes. Again, I must largely dismiss detailed discussion in this series of posts, but that is largely because the very nature of the long-tail phenomenon denies predictability.

  1. Not only does using an analogy help explain these issues without getting into the endowment effect's distortions, but it also avoids the problems inherited from the third common factor: Nobody can really trust any of the numbers. Admittedly, this reservation is itself a bit circular, because some of that culture of secrecy is reflected in/reflects the endowment effect by itself.

    There's an old saying that "It's easier to get forgiveness than get permission." The endowment effect in general calls that into question... and perhaps nowhere more obviously than when personal creations are at issue, particularly including (but not limited to) the entertainment/publishing industry. When dealing with creative products, it's easier to get permission than to get forgiveness. The core of copyright law and patent law recognize this very simply, by explicitly allowing an injunction against continued use without a license (permission). Not surprisingly, most legal causes of action regarding property do not inherently include injunctive relief as not just a possible, but a relatively routine, part of the remedy.

  2. Admittedly, this semiquantized representation does not reflect some of the nuances that one can infer by going deeper and deeper into the math itself, and what the particular mathematical operations and constructs — such as, for example, calculated entropy and enthalpy, Gibbs energy, and so on — tell one about the complexity of even the simplest closed systems. As shall become clear shortly, though, the point is the field condition... not excrutiating accuracy of these three statements.
  3. One might argue that considering Heisenberg's principle is irrelevant, because it arises from a simultaneity problem with measuring two different aspects of a single particle (location and vector). A little thought, though, will show that there's a similar simultaneity paradox in financial terms... that I can't represent accurately in standard HTML, so I'm not going to try.