In previous posts we have sketched out the rapidly-evolving world of streaming content. The rise of streaming has reordered power in Hollywood and in the music business, sometimes in dramatic ways. But as we describe at length in The Second Digital Disruption, it also has major implications for intellectual property law.

According to the consequentialist justification for copyright, which is the dominant justification in American law, strong copyright is viewed as necessary because creative production is by its nature a high-risk enterprise. The primary role of copyright is to protect against copying, so that the large up-front investment in creative work can be more safely made.

In the absence of such protections, the theory holds, the prospect of unrestrained competition from copyists will deter investment in the production of new creative works. The result will be a persistent undersupply of new works.

Yet in fact there are two chief risks for creative production. One is the risk of market failure -- i.e., risk that no one wants to read, or watch, or listen to, or use, the work that the author creates. The other is what we call the risk of market success -- i.e., that the work proves to be popular, and that popularity attracts pirates whose unauthorized copies steal away potential customers for the author's work.

Note that not all copying poses this sort of competitive threat -- copies that are low enough quality, for example, may be so undesirable that they fail to divert sales from the author. But so long as copies compete, either with the author's sale of copies of his work, or for substantial opportunities to license that work to others, then this "risk of success" is a threat to the author's incentives to undertake the often-costly enterprise of creation in the first place.

IP law, when properly designed and successfully implemented, can reduce the risk of success. Indeed, the basic premise of copyright law is that the protection afforded helps reduce the risk that copyists will divert away from authors the returns from a successful work.

But copyright (and IP rules generally) have no effect whatsoever on the risk of failure. And for most creative works, the problem is not piracy but a lack of market demand.

As a consequence, the risk of failure is at least as important to authors' creative incentives as the risk of success. Indeed, in economic terms, both types of risk drive down the return that the author expects ex ante on his investment in creation, whether that investment is understood in terms of the monetary cost of creativity or the opportunity cost of engaging in creative work versus some other work with a more predictable return.

And in the real world often it is the risk of failure that looms largest -- many more works fail in the market than succeed and are pirated. A work that is pirated is, in a sense, a successful work. No one wants to pirate works that no one wants.

The risk of failure was, until recently, thought of as something largely exogenous, unpredictable, and addressable only by hunches and market experience.

But what if something were to change such that consumer preferences can be readily discerned to a very high degree, and content better matched to consumer demand that produced at a lower level of risk, such that failure is less likely?

That is the world of data-driven authorship that we appear to be entering. In such a world, it may be that producers -- at least producers who have access to the massive quantity of consumer preference data that makes data-driven authorship possible -- are no longer investing with the same fear of market failure. They can invest with greater confidence.

Data-driven authorship does not guarantee that works will not fail in the market. But it makes failure less likely -- and this advantage is precisely why Time-Warner and AT&T fought so hard to merge in 2018 — Time Warner wanted access to the data that hitching up with AT&T (which runs a big ISP) would provide.

Data-driven authorship is thus likely to have an invigorating effect on creative incentives. By lowering the risk of failure, data-driven authorship lowers the overall risk of engaging in and investing in creative work.

As a consequence, viewed from the ex ante perspective, the overall expected return on any given investment in creative work is higher with the onset of data-driven authorship, even if the scope, duration, and enforceability of copyright is held constant. And that means that if we want to keep the same level of incentive to engage in creative work — that is, if we believe that our current level of incentive is roughly correct and want to preserve it -- we can afford to reduce the scope and/or duration of copyright rights.

This is especially likely to be true because the rise of data-driven authorship also helps reduce, albeit indirectly, the risk of success. So far, at least, the rise of data-driven authorship tends to be the domain of large digital distribution platforms offering big libraries of content and all-you-can-eat pricing. So long as the content is available at a price most are willing to pay, these features tend to drive down piracy rates.

As should be obvious by now, these trends are significant for our understanding how strong and broad IP rights need to be. In a data-driven world the scope or duration of IP rights likely could be substantially reduced with little impact on creative production.

In our next post, we'll think a bit about how that shift is likely to affect public intuitions about creativity, creators, and property claims in creative works.