Michael Zeleny (larvatus) wrote,
Michael Zeleny

distributed royalties in interactive media

Distributed Royalties in Interactive Media

For the purposes of this discussion, we shall understand royalties as the sum of money earned by and paid to the proprietor and licensor of intellectual property (IP) rights for the benefits derived by the licensee through the exercise of such rights under a licensing agreement. Initially we further restrict our discussion to royalties due and payable for copyright-protected content contributed by identifiable users to advertising-supported Internet discussion fora.

As experienced on the Internet, an online forum, also known as a discussion board, is an asynchronous communication platform realized as a website that is composed at its core of a number of discussion threads. Each such thread begins with one individual contributing a comment or question posted online. Other individuals who read that contribution may respond with their own remarks over time. Their responses may elicit further remarks, and so on. The resulting threads comprise and organize diverging sequences of multimedia messages that are freely contributed by individuals who may be allowed to do so anonymously, or may be encouraged or required to undergo optional or mandatory registration. We distinguish between visitors who passively browse the website, users who interact with it, and members who register on it by providing verifiable personal information. Contributing users and members may change or edit only the website content that has been submitted by them, identified as such by association with their registration, their IP address, or some other token of realspace identity. Further edit privileges are reserved for moderators.

An online forum may encourage freedom of expression by accepting anonymous or pseudonymous contributions, and even offering to warrant the privacy of its contributors against any inquiry that falls short of a court order. Nevertheless, the commercial value of an interactive website is thought to be closely associated to the demographics of its user base and its accessibility to commercial initiatives that emanate from its owners. In order to increase value, the owners of an online forum may encourage or enforce registration of its users that is more or less reliably linked to their authentic realspace identities. Such registration might be encouraged by a website policy embodied in software functionality that grants additional privileges to registered members. Alternatively, registration might be enforced as a prerequisite for serving pageviews, performing searches, or accepting user contributions of content. As is well understood, in the task of eliciting personal details online, the carrot works better than the stick. On the one hand, Internet populace tends to be very forthcoming with personal advice and anecdotes. On the other hand, its constituents are notoriously reluctant to engage in any online transactions, all the more so when these transactions require them to divulge their personal identities. Successful operators of online communities navigate between these conflicting tendencies. In other words, they succeed by converting visitors to users to members.

In pursuing their business, operators of online fora must accommodate a variety of laws. Special concerns include preventing sexual exploitation of minors, protecting intellectual property rights of their contributors and any unrelated parties, avoiding defamation and invasion of privacy, and controlling the distribution of politically sensitive speech in jurisdictions not bound by legal guarantees of freedom of expression. At the same time, their business depends on encouraging their contributors to submit content that attracts high levels of visitor traffic and user interaction. Visitor traffic yields the basis for the associated commercial transactions, whereas user interaction increases their conversion rates. We take a user clicking on a targeted advertising hyperlink as a paradigmatic example of such transaction. Such clicks are responsible for supporting some of the most commercially successful websites operated at this time. Our aim in this paper is to define a model for distributing revenue derived from advertising by operators of online fora in a way that optimizes the qualities of their content and the ensuing quantities of traffic and interaction.

At present, online fora generally abstain from creating commercial incentives for their contributors. This abstinence results in an unstable situation, in which user and member contributions are motivated solely by a desire for exposure, whereas this exposure, as provided by the owners and operators of communities, is motivated solely by a profit motive in harnessing this desire on the behalves of their investors and advertisers. In effect, this model serves the profit motive by actions grounded in cravings for esteem. Business models of successful Internet communities suggest their operators’ expectation for this motivational disparity to continue indefinitely. However, this expectation is belied by the historical record of commercial distribution of content in all relevant media.

It is true that early masterworks in literature and music have been freely volunteered by their creators unconcerned with any prospects of remuneration. But these selfless efforts became predominantly overshadowed by the products of self-interest. Early commercial composers sold their wares under the system of patronage. They sought royal, noble, or ecclesiastical patrons who would underwrite works by in exchange for favorable mention in the text or its dedication. The most adroit of them supplemented these lordly benefits with plebeian marketing. Thus Beethoven devised a system whereby a patron could pay a fee to receive a dedication for a major new composition together with rights to sponsor his own performances thereof until a certain date, whereupon the composer would regain possession of the work and arrange for its commercial publication. (David Wyn Jones, The Symphony in Beethoven’s Vienna, Cambridge University Press, 2006, pp. 167-168.) But inexorable advent of the Third Estate ensured eventual domination of market incentives. As the patronage system waned with the decrepitude of the old regime, an ethos of freelance composition gained ground in the XVIIIth century. By its last quarter, artists and their public alike understood all too well that “No man but a blockhead ever wrote except for money.” (James Boswell, The Life of Samuel Johnson, Vol. VI, Chap. iii, 1776.) This economic understanding underpinned a legal concern with vesting the rights to a literary work in its author instead of consigning them to its publisher. In its mature form, the concern found its expression in the system of royalties due to the author as a result of licensing his work to a publisher. (L. Ray Patterson & Stanley W. Lindberg, The Nature of Copyright: A Law of Users’ Rights, The University of Georgia Press, 1991, pp. 27-47, 109-122.)

Today, the amount of royalties tends to be calculated by a formula specified in the licensing agreement, under a definition of the royalty rate and the unit base to which it is meant to be applied. Typically, the royalty rate may amount to a certain percentage of the annual sales value of the product derived by the licensee, from the content created by the licensor. The calculation of royalties is subject to the licensing agreement for commercial use under specific terms within a circumscribed market, medium, or territory. At present, these agreements are tailored towards a single party responsible for creating the content and entitled to payment for its use. Our task is to extend their form to cover multimedia content created and contributed through collaboration in Internet fora. The immense value of this endeavor is borne out by a retrospective consideration of successes reaped by the publishers through timely and effective exploitation of incentives for writing.

As described above, each discussion thread within an online forum has the form of a conversation structured as an interconnected series of user- or member-contributed posts. A single individual is responsible for the root contribution. That contribution may elicit a number of follow-up responses. These responses may in turn precipitate further follow-ups. Under the Pareto principle, 20% of follow-ups will be responsible for 80% of the ensuing traffic and interaction. Further stratification of performance will attribute 80% of that top 80% of effects to 20% within 20% of the causes, and so on. This statistical truism results in the situation where a handful of content contributors are responsible for the vast majority of the website’s earnings. The most popular among them are bound to realize the benefit of guiding their fans away from the online forum that launched their careers, to their own personal pages. This benefit tightly correlates with their inability to profit directly from the traffic they generate for the community website. While the value of online fora depends on their ability to monetize the traffic generated by their contributors through ad sales and marketing, their remuneration is limited to providing the services of web development, hosting, and distribution, complemented by the benefits of community networking. In this trade-off, the services offered by the fora are rapidly diminishing if not reversing in their real and perceived value, owing to their commodification. On the other hand, the appeal of the online network effect is subject to the vagaries of fashion responsible for the undoing of thriving communities ranging from subscriber-era AOL to Friendster. In the long run, it is unlikely that the attraction of packaged social networking will dispel the readymade tedium of brand fatigue. Absent the profit motive, nothing can keep the trendsetters from defecting. A startup supported by venture capital and expected to maximize its popularity and revenues at all costs can scarcely afford such defections. (Michael Hirschorn, The Web 2.0 Bubble: Why the social-media revolution will go out with a whimper, The Atlantic Monthly, April 2007.)

Accordingly, rewarding top performers can be expected to come to the fore as the key issue of Internet social networking. In the online culture that thrives on free exchange of information, an effective policy of performance incentives must be regarded as fair by the majority of its constituency. The first step towards instituting a fair and effective reward policy is to formulate a metric of performance. It would not do to take the user-supplied measure of peer popularity as the basis for identifying the best performers. For it is often the case that the least liked contributors are responsible for the greatest amount of visitor traffic and user interaction. As Peter Cook explained it to Dudley Moore, “You love to hate the one who loves the one you hate to love to love.” (The Psychiatrist, BBC2, 1966, in Tragically I Was an Only Twin: The Complete Peter Cook, edited by William Cook, St. Martin’s Press, 2002, p. 95.) An important exception to any incentive policy based in this observation arises from the phenomenon of trolling, vacuous, vexatious, and invalid contributions motivated by a wish to cause disruption. It falls upon the moderators to formulate and execute an effective policy for dealing with the ensuing disturbances.


It might be objected that creating financial incentives for participating in an online forum would reduce the quality of contributions to the lowest common denominator. But there is no reason to suppose that concern with quality poses itself more acutely in a setting motivated by profit than in one motivated by esteem. In any event, spam control is as applicable to the former scenario as it is to the latter. More importantly, extending the financial incentives enjoyed by the website owners to its user populace, appeals to the sense of fairness and equity that permeates and motivated Internet culture. The most effective salesmanship emerges organically from sincere belief in the value of the product. The current practice of fitting advertising links to keywords passively identified in the web page would greatly benefit from providing an active incentive for users to tailor their contributions to commercial ends. A fair and effective method for distributing royalties in Internet media creates a powerful competitive advantage for advertising-supported online fora through converting their participants to full-fledged partners of their proprietors.

The foregoing method can be extended to threaded interactive contributions of heterogeneous content, such as graphics, photos, or video files followed by comments or multimedia responses. Future attention should be directed to extending our model of distributed royalties to collaborative authoring in a wiki, a website that allows visitors to add, remove, edit and change content, typically without the need for registration. Providing the correct solution for this problem would depend on rewarding priority in persistent editorial contributions.

— Michael Zeleny, 22 March 2007 – 12 August 2008

Tags: business, citationalism, computers, internet, software

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