The Digital Art Auction

Making Money when Information Wants to be Free

See HERE for the website based on this article

Introduction

Trends, trends! What’s happening? How did we get here and where the heck are we going?

I think we all have that sneaking suspicion that progress is happening right under our noses, and worryingly that ‘right now’ might just be one of those rare occasions when we are failing to notice that we should be jumping and adapting to a changed world.

Well, yup, that’s what I’m going to tell you. The relationship between artist and audience, whether musician and fan or game developer and player, is changing, and as I’m sure your perked ears will appreciate, the financial relationship in particular.

It’s simply amazing how fast the world turns, at least in surface speed terms – especially when you don’t notice it (1 degree every 4 minutes). Well, you might lie on your back in the middle of a sunny meadow one day and imagine that you can tell it’s turning, but it’s probably just the scudding clouds (you have to wait for sunset to have any real chance). It’s also amazing how fast the world progresses, at least in technology terms. And usually, that progress is also imperceptible. One year you have Teletext, five years later, the Web – but the transition is gradual if not obscure. However, perhaps analogously to the clouds, if you spend a few months on your backside constantly exploring the Web for technology news, you’d probably get a bit giddy at how fast developments seem to be happening. Whether progress is really happening as fast as the Web makes it seem, well, perhaps it isn’t. At least, a week or so after you’ve wrenched yourself away from the Web, the familiar, imperceptible, plodding progress of mankind seems to resume.

Anyway, like time lapse photography, the Web seems to let you see progress, and most importantly, trends in progress in a much more dynamic, almost animated way.

So, in this article, I’m just going to tell you the trends I’ve observed (or think I have) whilst cruising the Web and some of the solutions my engineering oriented brain has light-bulbed into existence. These aren’t necessarily unique insights, or ones that anyone else wouldn’t have had if they’d looked in the same places, but I think there’s scope for them to be interesting and perhaps be compared with your own.

The Business

As artists, musicians, film makers, games developers, whatever, whether passive or interactive, we’re all in the digital entertainment business.

In case you’re wondering about my use of the term ‘digital’ I use that to mean any artwork that can be perfectly reproduced at negligible cost such that the reproduction has the same value as the original (discounting packaging). Typically, digital representation enables perfect reproduction, and this is very useful where the original art can be embodied in digital form without significant loss of quality. We now have the ability to make books, music, pictures, and of course, computer programs wholly in the digital domain and without perceptible digital artefact. Tangible art, of course, largely eludes our grasp (sculpture, buildings, furniture, manufactured goods, consumables, etc.). Although highly immersive and haptic user interfaces will strive to allow us to appreciate more tangible art over the coming years, it’ll be a while before you’ll get to sit on a virtual chair, and a long while before you can eat something virtual.

There are thus two worlds in which people do business: the virtual world of digital art, and the real world of tangible art. Up until now we’ve been trying to use the same commercial structures in the virtual world that we’ve been using in the real world. As things such as Napster have demonstrated, our current conventions such as copyright may not be quite as ideal or resilient in the virtual world as they are in the real one.

Our Deal

As workers in the field of digital art, what then are we trying to get out of life? What is our business?

Well, perhaps this is our deal: We’re digital artists and we create digital art. We enjoy doing this, but we enjoy life too, so we need some kind of recompense from our appreciative audience so that we can carry on producing what we all enjoy.

Ah, but the audience says: Hey, guys, you’ve got it backwards - we’re the ones telling you what to do. You produce the entertainment we, the market, demand. We commission your work from our hard earned cash.

And then the middlemen pop up and say: Hehe, actually, we’re harnessing, directing and channelling both of you, but we’d prefer it if you saw us as kindly mediators, facilitating the exchange of money and entertainment between you. Of course, for this generous service, perhaps we’re entitled to a modest percentage…

And the platform producers keep fairly quiet, satisfied in the knowledge that artists will always need canvas and materials upon which to produce their art, and that the audience always needs a means to enjoy it.

The retailers? Can anyone hear what they’re saying? They’re a bit faint.

Hmmmn, there’s evidently some confusion going on here. Well, thankfully, one thing the Web is good for is bringing people together, so with luck we’ll get a better deal sorted out soon…

It’s the Book’s Fault

We should never lose sight of the original situation we had a few hundred years ago when the printing press made the act of copying an easier way for printers to make money than commissioning an original work. In view of the stalemate that loomed if printing became unrestricted, and the consequent dearth of works that would be produced in the face of apparently impossible economics, the idea of copyright came into being. Whilst printing presses had been controlled from their earliest days in order to keep tabs on seditious propaganda, it was only when they subsequently became unrestricted that things started looking bleak for printers (and thus authors) looking to earn a living. ‘Copyright theft’, intellectual property, and duplication piracy have been with us a long time, but the crime they circumscribe was invented out of commercial expediency.

While there are always royal or other wealthy parties who may commission a piece of art, whether sculpture, painting, music, or other art form, even a song or play, the beauty of the printed word, as opposed to the hand scribed word, was that it was relatively cheap to duplicate, and meant the cost could be divided among a large total audience – larger even than to a mass performance or viewing. As long as such a fee could be associated with the book, the work would continue to earn revenue in perpetuity. It is not difficult to see the economics involved. Essentially, good revenue could be obtained at relatively low financial risk, from sale of a printed book at modest price (certainly lower than a hand-scribed copy). The only problem was the competition from another perhaps less scrupulous printer (who’d be able to undercut, having fewer overheads, particularly the absence of an author). The printers naturally formed a cartel with an agreement not to copy each others work and this eventually became enshrined in law (albeit adjusted more toward the author’s favour).

What If?

But, what would have happened if the idea of copyright had never come into being, i.e. if printers had never been able to consolidate their cartel in law? Would society really have been deprived of great authors such as Charles Dickens? Who, incidentally, had plenty of difficulties himself in dealing with publishers, booksellers, his readership, and what form and frequency his writings should take. Well, let’s explore the idea. Most publications would have had to be funded by subscription to the original publisher. After all, the author has to be paid. This subscription wouldn’t be identified as going toward the printing cost, but toward the production cost, not least the author. Remember, the subscriber could purchase the printed item anywhere that was convenient, since it would be a free market for printing the material. And therefore, the printers would compete to provide the best value for money printing service.

But, hang on a mo. Wouldn’t everyone simply skip the subscription and just buy a printed copy on the street corner? Ah, but you see, if they did that, then the publication would deteriorate in terms of the quality of its content. The question is therefore, would market demand for a quality publication reach equilibrium with market pressure for lowest cost of delivery? Is the market in its aggregate behaviour intelligent enough to understand that whilst some people might get something for close to nothing, that enough people have to pay something in order to have anything at all?

What if we introduced the idea of a flexible subscription - that subscribers paid according to a personal evaluation of the work? Some subscribers might pay nothing except the proof-reading cost, and other subscribers might pay a considerable amount. This might be based on how much the reader was interested in the work, as opposed to how wealthy the reader was. But it would have to be a self-policed process, as only the individual would know their level of interest.

This seems a little contrary to normal market practices, but could it work in practice? Is there anything else like it? Well, such a voluntary subscription could be compared to a charitable covenant. This altruistic, regular giving towards a ‘good cause’, is typically where the beneficiaries are the population at large, albeit that portion that suffers a misfortune. Perhaps it can be extended to apply to the misfortune of being without pleasure to the senses? Could society have got used to the idea of putting artists on pedestals? We’d sponsor our favourites and reap the consequent rewards of all art together. Perhaps this would have kept art where it belongs, part of nature: once created, free to mankind. Funnily enough, there is some such sponsorship of the arts today, but funding tends to come mostly from government, wealthy philanthropists, and ‘friends of’ subscriptions. It also tends to occur (perhaps consequently) mainly in those arts that do not have commercially viable, mass appeal.

There is a way of making the subscription less voluntary. A prolific and well respected author such as Charles Dickens could have arranged for the creation of a fund for a forthcoming book, with an escrow to supply him with the funds in exchange for the publication of the book. If the fund doesn’t reach a sufficient amount, or the book doesn’t reach a sufficient quality, then no deal (try again or leave it until the next book). On this basis a publication fee can be commanded from the readership in exchange for the book. Of course, there is a large amount of trust involved (as well as administration costs), but at least it seems there is a mechanism that could work in the absence of copyright. However, non-disclosure agreements would still need to be implemented between the author and the escrow agency.

Of course, there is the small problem of how an author can become sufficiently widely recognised and respected to invite contributions to a publication fund. Well, this is a problem for authors today even in the presence of copyright. Prospective authors can contribute material to magazines (which can operate on the same ‘escrow fund’ basis), and might look forward to relatively wide recognition and the ability to branch out to create their own funding.

But then, it probably seemed much easier all those years ago to enshrine a copyright law. Perhaps today, in the presence of the Web and its low friction nature, we are beginning to see opportunities for new mechanisms that may be more viable than copyright. There are already modern authors such as Stephen King who seem to be willing to explore these.

Art as a Commodity

So, in the entertainment industry, instead of enjoying sponsorship, we have our art as a commodity, as a consumable – as property. And all because the book coincidentally served as its own admission ticket. Would we really have become a society devoid of great works of literature? Would we have remained a society of illiterates, with no author coming forward to have their works printed because there was no money in it? Would the printing press have caused a revolution without copyright?

Whilst it is difficult to conceive of circumstances that would prevent some form of copy protection law arising, I think there would still have been enough money in printing that something would have been printed. It’s just that other revenue mechanisms would have had to be invented instead to ensure that the author got paid, and that the reader was assured of a quality product for their money.

The only difference between then and now, is that today, everyone has a printing press, and a particularly capable one at that. It is difficult to imagine the hundreds of millions of these printing press owners agreeing to not copy each other’s work, as the handful of original press owners did a few hundred years ago. For that matter, no one needs to (or can) make a living out of copying work if everyone can do it.

We are now forced to consider that unthinkable situation where copyright is no longer viable or even necessary. Even so, we still need a mechanism to encourage authors to write as well as one to ensure that readers get a quality product. It seems logical to connect these two requirements together: that the readers pay the author, or in more general terms, that the audience pays the artist.

Conveying Art

Art must be conveyed from artist to people, and the people’s appreciation must be conveyed to the artist – work for art and art for money. The better the conveyance, the better for all concerned.

Imagine a society in which quality art can be appreciated by millions of people almost the very second it is created, and furthermore one in which the artist is reimbursed almost the very second they have completed their work. Today, we have the beginnings of the infrastructure that can support this.

The Internet has demonstrated that it can serve as an extremely efficient and economic distribution system. Unfortunately, it has not yet demonstrated that it can serve so effectively on the reimbursement side. This is the real problem. The problem is not, as so many think, how to enforce copyright on the Internet. Copyright is simply a legal contrivance of convenience to facilitate and protect the publishers’ choice of revenue mechanism, it is not necessarily the most optimal means of ensuring the artist gets rewarded for their efforts.

Art for Mankind, or Art for Money?

Where is it written that all who enjoy art must suffer? Are there really artists out there who wouldn’t wish that their art could be enjoyed by all mankind for nothing? If an artist does a deal to produce a work of art for a particular commission, do they really begrudge anyone else who might set eyes on it who had not contributed?

If we get out of the ‘art as commodity’ mindset that copyright and commercialism has created over the years, then we might just begin to see that art is an idea, whether realised or not, something that gives the artist or other people pleasure or helps them in their life or work. Once created, and shared among people, it is difficult to destroy, albeit possible to forget. Its realisation on paper or any other medium only helps to make the art persist, to contribute to the total sum of mankind’s art for all time, so that it is not forgotten.

Academic research is probably one of the few cases where production of art is philanthropically sponsored, usually by the state, though that tends to express a strong interest in art that is at least potentially of theoretical or practical use to mankind (science).

The advent of the Internet is the first occasion since democracy that people have been able en masse to collectively sponsor art. Whereas before we’ve had to rely on elected governments to have some semblance of funding the arts on behalf of the people, now we can speak direct to the artists.

Letting the Audience Pay

Millions of people can now petition their favourite artists. It’s just that we don’t yet have a mechanism for people to pay their favourite artists.

We’ve always had unrecorded, unnoticed, send-a-cheque contributions, but obviously it’s not easy to know if we’ve had any effect. Tipster, Fairtunes, etc. at least allow people to have some record of their actions, but it’s still a fairly one-sided affair without much communication going on (check out The Potlatch Protocol for more info).

We also have the Street Performer Protocol, and this is pretty good. It’s almost, but not quite there. The thing is, it still has a large voluntary component. Basically, the artist offers to produce a work in exchange for a certain amount of contributions from their audience. However, it’s up to each contributor to determine their own amount. The artist will only deliver when total contributions reach a certain level. However, because the artist accepts the full contribution offered, this may incline contributors to be a little more conservative (in case they are too generous).

Audience Demographics

Perhaps you could divide contributors like this:

A) The freeloaders – pay nothing

B) The miserly – pay a little as possible, but enough to get what’s desired

C) The economic – happy to pay up to the market value, but no more

D) The pure of heart – a generous payment according to personal value

E) The philanthropic – help the poor artist pay their mortgage

Now, the freeloaders provide no revenue with or without copyright. The miserly are a revenue stream, but not to the artist, as they tend to get their product via bootleggers. The economic will buy original product, but then they’ll also buy it second hand or ‘borrow’ it from their friends. The pure of heart are modest in number, but the artist’s best friends. Finally, the philanthropic may be counted on the fingers of one hand.

Now while we might like to imagine we are mostly a world of folk, at least pure of heart, in practice most of us simply decry the impure, wring our hands and exclaim that ‘Something must be done!’ Meanwhile we demonstrate the very same impurities ourselves. Ah yes, “We must petition our governments to stop us: having so many babies, eating so much, polluting the world, driving so fast, giving so little to charity, ripping off software, downloading MP3 files, etc.”

Artists are not going to survive if they only get paid by the pure of heart.

We need a mechanism like the Street Performer Protocol, but one that embraces the notion of ‘market value’ rather than ‘personal value’. This way we’ll also bring the economic orientation of citizen into the revenue stream.

Hard Nosed Business

So, we need to facilitate a deal between an artist and their audience, to enable both parties to reach a price they are relatively satisfied represents the market value for the digital art concerned. However, the audience is not treated as a homogenous mass, but as a collection of individuals with independent views as to the valuation of the art.

An artist, having obtained an audience, needs to be able to offer up their art for sale to that audience. There needs to be a lightweight gizmo that the artist can put on their web page that collects a participation in the deal from each member of the audience. The artists as seller invites purchase, each member of the audience as buyer offers a valuation – at some point (if both sides are fair) a deal can be made. Naturally, upon the deal, the buyers must convey money, and the seller must convey the digital art as product.

Timescales

As both the money and the product are distributed in digital form, the deal can be completed very quickly.

Of course, it can take time for enough of an audience to express interest in the art, and therefore for sufficient buyers to reach the seller’s sale price. But digital artists may be painfully familiar with how long it takes for royalty cheques to arrive on ones doorstep. Then on the other hand, the audience knows how long it takes between a project starting, their enthusiasm being whetted and the final, sometimes belated release of the art. Thus if the audience builds up as the art is being developed then the lead time to release is combined with the lead time to royalty.

In plain terms, if you take two years to develop a work of art and at the same time build up an avid fan base of around 100,000 prospective purchasers, then come launch on the release date, you’re looking at cash in hand of 100,000 times the market valuation, e.g. at $10 a shot, that’s a million bucks (without middlemen). Of course, if you have a team of 20 staff, then it doesn’t get you much for two years work. Maybe you need to run a public viewing or demonstration for a while to virally obtain a bigger audience? Or perhaps in the case of films or games the trick, is to go episodic? The more frequently you can release product, the more easily you can build and sustain your audience, and the better the economics work out.

Collective Bargaining

Are there any existing mechanisms that enable multiple buyers to arrive at an equitable deal with a single vendor? There are auctions, but these tend to deal primarily with single items, or single collections, ‘lots’, of items. On occasion there may be a lot that consists of a large number of near identical items, e.g. coffee mugs, TV sets, concert tickets, etc. You’ll find such auctions as Dutch, Yankee, English, Vickrey, etc. However, these all exhibit signs of having been designed to deal with relatively small and finite quantities, and more particularly to operate on a fairly short timescale. Everyone’s in a hurry and the goods often have to be sold sooner rather than later.

There are the stock markets, of course. By allowing people to buy and sell, these tend to give an up to date valuation of a company or commodity. However, it’s often difficult to buy or sell an entire company or large volume of commodity without affecting the price in the process.

If only there was a way, in which we could allow a deal to progress for an indeterminate amount of time, yet allow continuous valuation (and monitoring of this) of the commodity to be sold. This would require that a buyer could submit, adjust or withdraw their valuation at any time. Naturally, the seller should also be able to choose when or if they wish to sell at any time. Overall, we need to replicate the current way in which digital art is bought and sold today, i.e. everyone pays the same price, but the price is determined to maximise the total revenue available from the market, ‘what it will bear’ in more familiar terms.

The Digital Art Auction

So we combine the one-to-many relationship embodied in the auction together with the real-time nature of the stock market.

Auctions are places at which market value tends to be the order of the day. Naturally, the vendor hopes that this is exceeded, and the bidding buyers hope it isn’t. The vendor relies on the competitive nature of the bidders to ensure that what is sold is fairly well valued.

So one thing that an auction isn’t expected to be (except on explicitly charitable occasions) is an opportunity for generosity (despite the auctioneer’s jovial exhortations or praise in that respect from time to time). This is why ‘auction’, is a fairly appropriate term to describe the kind of deal making mechanism we’re talking about, i.e. one in which the various parties are consciously trying to avoid being generous.

Distinct from conventional auctions which tend to deal in tangible goods (or goods treated as such), we are dealing with digital goods, or rather, digital works of art. Furthermore, because of its digital nature the art is distributed via a process of digital duplication to all successful bidders. This is why ‘digital’ is a fairly apposite term.

We arrive at the ‘Digital Art Auction’, a process whereby the audience is able to make a valuation over a period of time and during this time perceive and understand itself as it makes this valuation.

The Audience as a Buyer

I assume that in the near future more and more of the audience for digital art will have online access. I also assume that this audience will begin to lose its passive, consumerist nature, and start participating to a far greater extent in the process of pushing its favorite artists to produce art. From this audience therefore comes an expression of interest in the art and artists of their preference. This interest has a quantifiable monetary value. The act of expressing this interest, however small, is also a personal and voluntary decision and likely to be sufficient to overcome the decision cost involved. In other words people will want to express their opinion of the worth of something even if it is tantamount to a micropayment in terms of monetary value, e.g. I might decide that I like all photos taken by a particular photographer, and that at a minimum I will value each photo at one tenth of a cent (before I see them). From time to time, I may express an interest in the release of a particularly interesting photo, for which only a low res preview is available. I might offer a much higher valuation in this case. Remember, it could be episodes of a particular film or game, singles by a particular musician, or even software from a particular coder.

The audience is effectively saying “I’d buy that for a dollar” – or whatever value they place on a particular piece of art. It might be a case of “When this is released I’d be willing to pay ten dollars for it on CD”. However, in terms of The Digital Art Auction this interest is expressed as a bid, i.e. “I will pay up to X dollars for this artwork when it is sold”. The bid may be adjusted or withdrawn any time up until the artist decides to sell, but when the artist sells, they sell a copy of their work to everyone whose bid equaled or surpassed the sell price.

Note that the sell price, is the ‘per copy’ price. This is the key differentiator between the ‘Digital Art Auction’ and the ‘Street Performer Protocol’. The former charges the same price to each member of the audience, whereas the latter collects the total of each individual’s personal valuation of the art. On one hand we have a deal for a retail price arranged between a collective of consumers and their supplier, and on the other we have a collection of quasi-charitable pledges.

The beauty of The Digital Art Auction is that it allows the audience to freely express its personal valuation of the product all the while being confident that no-one will pay over the odds, i.e. more than the market value. This is because there will be a tendency for the artist to pick the price that will maximize their total income. There will be a larger portion of the audience willing to spend a small amount, compared with a smaller portion willing to pay a much larger one. Therefore, pricing will tend toward that typical for mass produced goods, i.e. the low end of the scale. It’s possible that a modest number of wealthy fans will command a higher price, but unlikely.

The Artist as a Seller

Who’s got the money? Who funds your work? The publisher, you might say. But, ultimately it’s the audience. Get back in touch with your market, and I mean really in touch. If many of your fans are queuing up to discuss your new project a year or more before release in your online discussion forums, maybe they’d like to assist you with some funding? I don’t just mean charge them to join your preview or beta-testing program, I mean invite them to bid for the release. If the majority of your potential market visits your site and gets to express a financial interest in your final product, you might end up being able to dispense with the publisher. You might even get into a position where you could arrange a completion bond all by yourself. Then again, maybe not.

So, just imagine it: you produce a demo of your music, or game, with a bit of blurb that invites people who enjoyed it to mail it to their friends, but also to ‘pre-order’, or rather bid for a collector’s edition of the first release at the price they’d be willing to pay for it. The popularity of your virally marketed demo soars and you receive a million bids within the space of a few months. Maybe your optimum price is $1.29, maybe it’s $2.30, but there’s some money there – take it or leave it. No pressure. At the end of the day you can still flog it to the conventional publisher down the road – if they reckon retail will get a bigger return. And then you might just get costs covered and still have to worry about royalties and illicit copying…

What can you lose? Maybe a lack of bidding punters might spook the retail market, but that can happen with lousy reviews.

Where Does the Publisher Fit In?

You might imagine that the publisher will simply see this as another purchasing mechanism. They’ll see that there’s still an opportunity to provide the upfront funding for projects, but that The Digital Art Auction might just work instead of conventional sales routes if it captures the buying public’s imagination.

Well, it’ll have to be a fairly lean publisher. The thing about the future relationship between artist and audience is that they’ll get closer, and The Digital Art Auction allows the deal between them to be done with fairly little friction. Anyone who intends to mediate will have to add value to the process, not remove it.

The Digital Art Auction Process

Here are seven steps to a sale using The Digital Art Auction:

1) Artist offers to release

The artist:

· declares the work of art that they have or will have produced (with time estimate).

· specifies the means by which this art is to be validated, e.g. trusted third party (the choice of which can be mutually agreed between artist and audience).

· specifies the form in which it will be delivered, e.g. CDs with special ‘collector edition’ cases, digitally signed binaries via e-mail, etc.

· describes and commences the preview process: demos, samples, low quality previews, private viewings, published reviews, etc.

2) Audience bids on price

Over a period of time the audience places bids for the maximum per copy value of the released art that they will pay.

3) Bidding Information

Information concerning the current bids is freely and continuously published (in real-time, preferably).

4) Review Bids

The audience may review and adjust their bids at any time prior to sale

5) Trying the Deal

The artist at a time of their choosing may try the deal (bidding is suspended)

6) Validation

The validation process is performed in a reasonable time. If validated, the deal is done, otherwise the bidding process continues. The validator’s findings are published either way.

7) Completing the Deal

With the deal done, the artist specifies the per copy price and collects this from each bidder whose bid met or exceeded it. The release edition of the art is delivered to each successful bidder (within a reasonable amount of time).

Caveats

Bidders must have created a central fund with a recognized fund holder (PayPal say) from which they can support their bids. While a bid is made, the bidder is committed up to the value of that bid – an amount up to the value of the bid will be withdrawn when the deal is complete. Bids have to be guaranteed – imagine the poor artist chasing each bidder.

The validator is expected to stand entirely upon their reputation, so is usually immune from prosecution (unless they provide guarantees). Contingency must have been made in case they are unable to perform the validation when required. The validator will have an additional role in supplying at least a copy of art to the bidders on the artist’s behalf, if the artist is unable to deliver it as proposed.

As bids are able to be changed at liberty until the deal is tried, there is also no redress to the artist if any of the bidders decide that the art is unsatisfactory after the deal has been done. This is a ‘sold as seen’ kind of auction.

The artist has the responsibility to ensure their art remains secure until the deal is done.

What Happens to Copyright?

I’m not really sure how long copyright is going remain useful, but there’s little reason why it shouldn’t continue to be recognized even after a digital art auction has completed. You never know, someone may still value it.

It’s up to the artist what they do with the copyright to their art, but they should make it clear from the outset what will happen to it. They have the following choices:

· Retain the exclusive copyright

· License the art into the public domain (or otherwise nullify the copyright)

· Transfer the copyright to the successful bidders

· Share the copyright with the successful bidders

As to which option the artist should go for, which one will encourage the best deal, this probably depends upon the nature of the art.

Incidentally, the audience is not guaranteed that what the artist says will happen to the copyright will actually happen – this is only backed up by the artist’s reputation.

It may be discovered that the artist has infringed someone else’s copyright for example. In this case each bidder will at least have a copy for their money, but they may no longer be able to freely copy it.

The artist is solely liable for any copyright infringement that occurs by having delivered the art to the successful bidders (whether they or the validator does this).

Variation 1 – Advance/Funding

Up until now it’s been implicit that the artist has arranged their own funding necessary for the production of art. There is a way in which funding can also be obtained in the bidding process.

This could almost be thought of as a combination of the ‘voluntary contribution’ idea with The Digital Art Auction. Naturally, this is probably only going to work in situations where the artist is highly regarded and has a good reputation. There’s a deal of trust involved in stumping up some cash up front to someone in the hope it will help them produce the art one hopes for, especially when there’s no guarantee or mandatory refund involved.

The way it works is this: the respected artist describes a project to produce art, and as usual invites bids for the final product, however, they also invite bidders to designate a portion of their bid to be available as an advance.

This advance would be transferred to the artist immediately the bid was made. While the artist would not be obliged to return the advance, the fund manager would record what advances had been made. The artist could refund these at a later date if they decided to abandon that project, but successfully completed another. Perhaps this is unlikely, but it at least provides an avenue for artists to salvage their reputation.

In order to assist audiences in assessing artists’ reputations the fund manager can publish historical records of each artists' project funding and delivery, along with currently outstanding advances for as yet undelivered art.

Variation 2 – Grant

Some people may not be particularly concerned about receiving a copy of the art, so much as wanting to help the artist complete it. Such people may want a fire and forget funding mechanism. In this case they would simply place a bid with a 100% advance component.

Here, the bidder is effectively making a grant to the artist in the hope it helps them produce the art that they’re inviting people to bid for.

It’s not really the Potlatch Protocol, as that is more a way for the audience to express the value they’ve placed on their enjoyment of the art. The Digital Art Auction is much more about commissioning art at a fair price than it is about rewarding artists according to the amount of pleasure their art has given, i.e. money for work, rather than a voluntary tax on pleasure.

Variation 3 – Gratuity

The bid is identified as the actual amount to be paid – if equal to, or above, the sale price. In effect the remainder of the bid after the sale price has been deducted is paid to the artist as a gratuity, i.e. the bidder has decided to pay what they think the art is worth to them, as opposed to the market.

This isn’t quite the same as the Street Performer Protocol’, but it’s similar. It could be considered the same though if every bidder chose to identify their bid in this manner and the artist sold at the price of the lowest bid.

Variation 4 – Automatic Sell

This is where the artist declares in advance, the revenue for which they will automatically sell. For example, the artist may declare that if the total revenue available (at any price) exceeds $100,000 then the art will be sold automatically (at the lowest price that first met that revenue), i.e. the artist won’t be tempted to hold out for more. Of course, the art must still be validated.

The artist can still sell at a lower revenue if they wish.

Variation 5 – Game Credits

Where the art to be auctioned is only of interest to players of a particular game, then a system of game credits could be used. These can be earned by players during a game, perhaps through skill or from trading of in-game commodities.

The game developer can specify the exchange rate they will accept as a conversion between game credits and currency when used to bid in future digital art auctions for game related art –further episodes perhaps?

Standing Orders

As previously indicated, some people may be confident enough in the quality of an artist’s output that they will be happy to execute a standing order in the form of an automatic default bid for each new work of art produced by an artist. On occasion they may review some of the bids that subsequently occur, e.g. to raise or lower the bid for particular projects.

Purchase Incentive and Freeloading

The biggest challenge to the credibility of The Digital Art Auction (as with other similar mechanisms) is: why on earth will someone pay good money for something if they can get it for nothing?

Well, we can also level this challenge against retail sales, say of CDs, whether music, games or anything else. The thing is, programs such as Napster and Gnutella are beginning to demonstrate that retail of copyrighted CDs is a goodwill based revenue mechanism. So if you have any doubts about relying on goodwill then you have to rule out voluntary contributions whether it’s cash over the counter, or online tips to a virtual tip jar.

The only other choice is to demand money up-front.

The Digital Art Auction achieves this. No money up-front, no music. You want art? Pay for it.

It can be compared to a silent bar or diner. There’s a jukebox, and everyone likes music, but someone’s got to pay or it stays silent. It just requires the understanding that of course, some people will enjoy the music for nothing, but then they didn’t get to choose it. Hmmm… I could’ve called this the Jukebox Protocol.

There’s also the wintry waiting room with the door left open by someone who just left. Everyone wants the door closed, but no one wants to get up to close it. As long as at least one person doesn’t get too hung up on wondering why they should close it for everyone else’s benefit, it’ll get closed.

So in general, as long as enough people don’t get too hung up on the chance that freeloaders will get something for nothing, then artists will get paid and their audiences will get their art.

The thing people have to realize is that there’ll always be freeloaders in any system – people that enjoy art, but convince themselves they’d never have paid for it anyway, so there’s no loss of revenue to the artist. Perhaps they’re correct in their analysis despite their lack of philanthropy? Could it be, all these years, that it’s only commerce that has seen money where there is none? How many of the billions of dollars that have been ‘lost’ to copyright theft are due to pirates obtaining money from naïve but honest customers, as opposed to ‘lost’ sales to freeloaders who refuse to pay on principle?

The equitability of The Digital Art Auction is that in exchange for the audience expressing a fair appraisal of the value of the art, the artist will only charge a fair price to that section of the audience that considers the artist’s price to be fair. Everyone who thinks the artist’s price is too high don’t pay (they’re left to change their mind and pay for it, or get it for nothing by making a bootlegged copy). Those who think it’s worth it pay for it. Can’t say fairer than that. Moreover, this system encourages the freeloaders and near-freeloaders to participate, because they’re still able to bid nothing, or next to nothing if they want to. Their bid is recognized, and might even be accepted (an artist can also sell for nothing or next to nothing if they really want to).

Audience/Artist Dialogue

One of the most important things that The Digital Art Auction does is to bring the audience back into a dialogue with the artist.

The artist can now tell the audience how much they need to be reimbursed in order to release their art. They can try and justify it by publishing a breakdown of the costs involved. They can even explain how long the art takes to produce, and hence how much they need to make in order to maintain their lifestyle. Of course, then we get into issues of how good a lifestyle they think the artist deserves. Such is the double-edged sword of ever greater openness.

Don’t forget though, the artist still has the monopoly on the art. If they’re not happy with the best price currently available, they don’t sell. Naturally, they’ll try to encourage their audience to increase their bids, and they’ll probably do their best to increase the size of their audience. This is where marketing comes into play of course, but then that problem’s not what I’m trying to solve here.

Given the information from the artist regarding what they need, along with the continuous information concerning the current bids, the audience is now able to directly haggle with the artist. The artist together with each bidder are aware of a rough break down of the current bids, how many there are, and what the shape of the bid distribution is. They’re also aware of the current best price available to the artist and have some historical information about this, perhaps in order to make a guess as to how soon the artist’s likely sell price will be reached.

There isn’t much to be gained by a bidder in changing their bid, as it’s unlikely to affect the overall scheme of things. They may decide for economic reasons that they can no longer afford their bid (in the case of high value art), but they’re assumed to have made a good estimate of how much they value it. Of course, if it turns out that the art has changed in value in their eyes, then they should change their bid accordingly. Similarly, it shouldn’t really matter to them how much other people value the art, then again it may be a legitimate concern if there’s a sudden mass change in the audience’s value of the art.

Appearances

Note: I’ve played around with some numbers on a spreadsheet in order to explore some of the likely numbers that could occur in a digital art auction. Of course, the response from a real audience is going to be different each time – I’m only making a guess about what a typical response might be (hopefully not too far fetched). The important thing is to think about how the information concerning the audience can be presented back to it, i.e. we need to help the audience understand its current opinion of the art. Ideally, we do this in a better way than a simple sales figure or a ‘list of the top ten pop tunes this week’. So in the following examples you should focus more on the way the information is presented than the particular estimates I’ve made as to a typical audience response.

Let’s imagine there’s an artist who wants to sell the fifth episode of her game at around $20,000. She’s currently attracted an audience of 722,293 people (presumably players of her games, ranging from mildly interested to avid fans). Each of these people has visited her website (or another site) that displays buttons allowing the expression of interest in her next episode. It’s likely that there was an extremely painless way for them to simply click on a ‘bid 1 cent’ or ‘bid 10 cents’ button (with no further interaction required), or if necessary go to further dialogs to bid larger amounts with additional options (view stats on this art, advances, e-mail notifications, preferences, view all my current bids, etc.). So let’s see what kind of information we could provide to a fan interested enough to consider their bid carefully, i.e. perhaps interested in bidding more than a trivial amount.

Graphs

My first idea was to look at how many people were bidding and at what price:

Well, this isn’t really very informative. A bit of an over optimistic price range perhaps, but if there was a high bid you can see that the graph would be a bit squashed. Let’s stretch it out a tad:

Well, this is a bit better. I’ve made the x-axis logarithmic so that each price range has a reasonable chunk of the graph. Unfortunately, because my example has a lot of trivial bids, they’ve overshadowed the few that occur at higher prices. Let’s make the y-axis logarithmic too:

Well, this is a bit better. There are probably more improvements one could make, but you get the idea. If you’re curious as to why there are two linear shapes in the graph, it’s because I’ve assumed that people are more likely to bid on single significant digit prices than two digit ones, e.g. someone is more like to say “I’ll buy that for three dollars” than they are to say “I’ll buy that for $2.90”. I’ve plucked a ratio of x20 out of the air for the differences in probabilities in this respect.

So in this graph we’d get a broad idea of where bids were distributed in terms of how many bids at each price. Perhaps an economist or social psychologist might determine how this graph looks for a given type of audience enthusiasm or type of art? Perhaps they all look the same? Who knows?

I’m not sure how useful the following graph would be, but I thought it might be interesting to see how much was being bid at each price in monetary terms:

Here you can see that in my example data there tends to be a correlation between the bid price and the number of people bidding at that price (well, there should be, because that’s one of the relationships I used to generate my data J). Perhaps there will be in real data.

One of the more interesting graphs would be to show the revenue that the artist would obtain if they sold at a particular bid price:

The audience and artist will be more interested in the money than the shape of the graph in this case, so I’ve returned the y-axis to linear.

Each little step shows the gradual accumulation of bid revenue that’s caused by the peak-popularity of single digit prices, i.e. the additional revenue gained by bids at these prices by increasing the sale price outweighs the loss of one of the double digit prices, e.g. going from $2.30 to $2.40 is an increase because of the popularity of the $3 price, however, the second you go to $3.10 you suddenly lose the many $3 bidders, and start relying on the $4 bidders.

The broad humps? Well, these aren’t real people so it would be silly for me to start psychoanalysing what was going on in the minds of the audience. We could expect though that people may prefer to bid ‘one’ of something, then to a lesser extent ‘three or four’ of something, and finally ‘thirty five’ of something. This is likely to play a large part in determining the best sale price. The broad humps in my example show that there’s similar behaviour in each decimal price range, but that it’s a close run thing between the sale value that can be obtained from the 5 or 50 cents bidders.

Whatever the situation, it’s likely that this graph will allow people to see at a glance as to where the sale price is heading, i.e. how valuable the art has tended to be valued by the current ‘market’.

Of course, in this example the artist would get a little less than $12,000 if they decide to sell immediately. That works out at about 1.6 cents per bid decision (or per audience ‘click’). I don’t know how that compares to eyeball or microtransaction value these days, but remember this is just a contrived example. This is a mechanism someone would put on their website for next to nothing. It might not generate as much income as a full blown marketing exercise with retail sales, but if you’re an artist who’d probably release the art for free anyway (simply for recognition), it’s better than nothing.

Another graph I thought might be useful, but now I’m not so sure, is what the shortfall was between the current number of bidders at each price and the number necessary to make the sale:

As you can see, it’s not much more than a straight line. One could come up with a few simple mathematical tricks to magnify the deviation, but I’m not sure it’d be worth it. I did think of expressing this shortfall in monetary terms, but as you can see next, it isn’t much more than an upside down version of the graph showing sales revenue available at each bid price:

Other graphs I thought of were to see how the situation had changed over time. The next graph shows the total audience each week throughout the year an auction has been running:

It’s not particularly interesting in this case because it simply reveals the sine function I used to generate new bidders each week. For a particularly interesting piece of art the curve would probably be exponential in shape until interest declined or the potential audience was near its maximum. Less interesting art may just be a much less steep curve, perhaps with an early plateau (and falloff even). I suppose there may be some scope in the future for developing a skill in reading the shapes of audience fluctuation (just as share prices).

Surprisingly (to me anyway), the way the best available sale has changed throughout the year is near identical to the shape of the audience change. It seems (in my data) that there is a simple relationship between bidder and total revenue:

However, as I did expect, the price at which the best available sale could be obtained was a little more irregular:

This basically shows that at the middle of the year there were a couple of weeks in which the 5 cents hump of bidders were briefly outbid by the 50 cents hump of bidders (40 cents to be precise). I can tell you, though I’ve not graphed it, that the shape of the distribution each week is roughly the same. This is because I’ve used the same generation function for each week’s figures, so though each week isn’t exactly the same, there’s a recognisable similarity.

Summary Information

I’ve shown the graphs first so that hopefully they will be effective even in my example here, of giving you some idea of how my contrived audience is arranged. From this we can start to see what summary information might be useful for someone in a hurry.

One thing we can present is what the current best sale is (continuously updated). In our case it would look something like this:

As at 12:17 UTC there are currently 722,293 bidders.

The best sale available is $11,591 at a bid price of $0.05 which is met by 231,816 of these bidders.

Here are some other examples of possibly interesting statistics:

The artist has declared an automatic sell at $20,000.

The lowest price that could obtain an automatic sale within the current bidders if they adjusted their bid is $0.03 by 666,667 bidders. This is already met by 362,304 bidders, leaving 304,363 of 359,989 bidders currently below that price who would be needed to raise their bids to it.

I’ve not computed any trends or forecasts out of the time series data, however, it’s possible some enterprising soul would present some – perhaps of the following form:

Based on past and current bid trends, estimated date at which vendor’s automatic sale price of $20,000 can be achieved is in 10 week’s time.

Well, probably not 10 week’s time. By the look of my data, audience interest has reached a plateau, so the artist would sell now, or do some marketing.

How Would it be Used?

How does it appear on the web site? Well, as you can tell, I’m not the world’s greatest website designer, but I’ve something like the following in mind:

I’m sure the web design experts could arrive at something much more inspiring.

Anyway, whatever the nature of the art (single, game episode, picture, etc.) there should be as little friction involved as possible in enabling someone to quickly place a bid on the release of the art. My example here is probably poor in this respect, but once a lot of people have signed up with a digital art auction clearing house (or whatever), it should be possible for them to click a button with some minimal graphic feedback (the button changes colour and has a tick superimposed over it, say) and they can continue their browsing uninterrupted.

In Operation

How it all works and how it gets implemented is another matter entirely of course. What I’m expecting is that there’ll be a central clearing house that will allow people to create accounts from which they can commit bids in various auctions. Naturally, people will be able to hold their own auctions and the proceeds can go into these accounts.

It may be that the clearing house will make enough revenue from the interest on the money people have paid into these accounts that they won’t need to charge a commission on auction sales. It’s likely that although bidders don’t actually pay any money until and if their bid covers the sale price, their account will have its funds whittled away in terms of commitment to each auction that are being participated in. For example I may have put in $10 into my account, but have bid 10¢ in a hundred and one different auctions. At this point I’d have to increase the funds in my account – despite the small likelihood that many of my bids would be called upon in the near future. Obviously with this happening a million fold there’s plenty of money tied up here earning someone plenty of interest.

There’ll also be a means for each account holder to see all the auctions they’re currently participating in, perhaps sorted by predicted completion date. For that matter, statistics can be collected to provide information on what the most popular or lucrative auctions are at the current time.

Users can have a preferences page that allows them to specify various defaults, automatic actions, and ways in which they prefer the bidding process to operate for them.

Implementation Issues

It would be nice if the necessary technology for The Digital Art Auction and any central administration, clearing house, whatever, could be developed using the Open Source methodology. Perhaps it could be an add-on to Apache? However, it may be that an enterprising and commercially oriented organisation might provide the quickest solution. I did suggest this to one of the VCs behind QXL, that rather than compete with eBay in the realm of tangibles, QXL might make a dramatic recovery in its fortunes if it focussed instead on intangibles such as digital art. However, no response of interest other than to suggest The Digital Art Auction might be worth someone else exploring for funding Open Source projects.

There’s probably a fair amount of money that would pass through the hands of whoever did implement this system. That might be enough inspiration alone, despite wondering about the level of interest one might expect or the rate of commission one could get away with. The service, one provides free, enables any Tom, Dick or Harry to put up a piece of digital art for auction simply by putting the right HTML code on their web page. They choose the minimum bid they’ll allow and whether to declare an automatic sale, and then they wait for the punters to click the buttons like there’s no tomorrow. Of course most artists will have their work cut out creating viral marketing wheezes to get sufficient punters, but that’s the other side of the artist’s talent/recognition coin.

It’s possible there may already be several companies developing the systems necessary to support such things as The Digital Art Auction, e.g. online auction system developers collaborating with electronic money and digi-cash facilities. Perhaps several solutions may be offered at the same time. As long as this diversity doesn’t as a consequence cause punters much pain, then it should still be fine – a free market in online digital art auction houses – no problem. It’s just it would be disappointing if the same thing occurs as has for audio, e.g. “Oh damn! Although I have Media Player and Real Player, I now need to download QuickTime…”. I don’t want to see different sets of buttons depending upon which auction providers a bidder is registered with.

One last point on implementation. Although I’ve implied that we need a system with central control and administration, it’s probably much better if it’s decentralised. This is something becoming ever more feasible with the advent of peer-to-peer and distributed systems. It may be though, that the centralised version proves the utility of The Digital Art Auction before it is then re-engineered in a decentralised fashion.

Delivery and Packaging

Let’s get back to what the punter gets for their money.

Punters like the old limited edition. They may realise they’re really just paying for a load of ones and zeros, but it would be nice to get some unique packaging or something to show that yes, they were one of the people who spotted the talent of artist X and helped them to go on to greater things.

The fact also remains that people like the impulse purchase or the immediacy of packaged art within arm’s reach. People will still want to view films in cinemas, play games on decent simulators in arcades, and hear great musicians live in concert. They’ll also be happy to pay a reasonable amount for CDs on store shelves given it might save them hassle (even if it’s 3 minutes downloading via their wireless MP3 player).

Think of it as being a free market in terms of delivering copyright-free digital art. There will be still be competition between online delivery and high-street delivery. The former can be convenient in terms of no physical packaging involved, whereas the latter can be valued because of the physical packaging involved. Incidentally, online delivery isn’t and won’t be totally free – until the techno-free paddy worker can do a complex hand signal to a passing spy satellite and a swarm of nanorobotic cochlea implant thingamagigs can be directed to fly up to him, implant themselves and provide him with a psychoacoustically accurate rendition of the symphony he selected in his hand gesture. Of course, someone else would have paid for this technology, but you get my drift: digital art may appear free to those that see the cost of its delivery as entirely separate, but to the unconnected, this notion of ‘free delivery’ is anything but.

We probably have only begun to scratch the surface of what value can be added to digital art. Companies such as Red Hat are adding service. Even proprietary digital art already has value added features: games come with a little booklet and quick reference card, CDs come with a really nice and informative inlay card, even DVDs come with a nice cover. If something can be attached to the purchase of the digital art in tangible form that adds value, then this might swing the decision of a punter to buy-in to it (if they don’t already have much reason to download it).

We’ve already seen graphics cards manufacturers supply free games with their hardware. Perhaps bundling process is going to take off with Open Source games? It won’t just be consoles, graphics cards and the odd joystick, we’ll see entire cockpits built to operate with particular games (and then other games developed to work with those cockpits, of course).

Remember though, there are no restrictions. Anyone can add value to digital art that’s in the public domain – it’s a free market. This would mean that a high street store or a shopping mall could have its own CD duplication room and inlay/label printer. There’s probably already a Walmart Linux CD (‘Red Hat compatible’) on sale today. Someone somewhere may even be duplicating 100% legit MP3 CDs (comprising music from ‘open’ artists). Just as some web sites add value to the web by collecting news or links relating to a particular field together, so stores can add value to the digital art they package and retail by adding printed biographies and discographies of artists as appropriate.

Retailing digital art should soon be seen as retailing added value – the art’s already been paid for, it’s just the delivery, packaging, service and support that costs extra.

Note that this extra cost would have to be identified in The Digital Art Auction. This could be done as an option (alongside a bit for 1 cent), e.g. “Tick here to receive a collector’s edition CD personally autographed by the artist at $15 extra inc. p&p”. Alternatively, it could be manifested as part of the sale, e.g. “Minimum bid is $5 in order to cover the costs of delivering a limited edition print of the art to your door”.

Certification and Digital Signatures

When art is sold via The Digital Art Auction it can be digitally signed by the artist in order for people to distinguish between an original and an unsigned duplicate. This digital signature can also, if desired, be a joint signature between the artist and the successful bidder. This allows people to determine which original they have a copy of. It also allows each bidder to demonstrate they have one of the authorised copies.

There is not much to stop the artist continuing to sign their work even after they’ve auctioned it, though one expects that the artist will continue to charge a similar fee for this kind of copy.

A digitally signed copy by demonstrating that it has been purchased and has thus made a contribution to the funding of the art may provide one of the factors to inspire people to purchase the art rather than copy it after it has been auctioned.

There is also nothing stopping a retailer purchasing digitally signed/serialised copies in bulk in order to package and sell ‘original’ copies. There might just be a marketing edge in selling well packaged ‘originals’ as opposed to well packaged ‘bootlegs’.

Teams

Artists are not necessarily expected to operate in isolation. In many cases a team of artists will work together to produce a combined work of art – a game say. In this case the ‘artist’ could be represented by a company if the team chooses to do it this way. It’s then up to the company to determine how the revenue from a digital art auction should be divided among its staff.

This scales up and you may see reinventions of the studio and the production company. For artists with talent but without audiences, they will join teams or studios in order to enjoy upfront wages. These studios will either be self-funded (from previous work) or will be appealing to production companies for funding. So in some ways, things may seem like they could stay the same, but I think the intermediaries will be much leaner, given that many artists will be able to appeal for funding to the audience directly. This probably results in a fairer system: the audience pays less, the middleman gets far less, and the artist gets a fair amount though a much reduced chance to overnight multi-millionaire status.

The Digital Art Auction is Open Source Compatible

The real cherry on the icing is this: if you wanted to, you could develop your game using Open Source components. You’re not selling the software, you’re accepting a fee to release the work into the public domain. Not only do you not care who copies your game, but you don’t have to worry about who copies the source code either (let alone worry about reverse engineering).

It’s a subtle point, but the GPL doesn’t say you can’t sell the software (at any price you choose), it simply says that the source code for the software you supply must be available without charge or any restrictions on copying, though the GPL must also apply to copies and derivatives.

Imagine that! Making a million bucks out of an Open Source game. J

Of course, you can stay proprietary if you wish – you may be producing a few other games on your special engine – but if you ever wondered how you can make money selling a game made out of Open Source components this is how.

The Dawning of Collaboration – the Sunset of Competition

I believe we are beginning to see the end of commercial competition, at least in terms of digital art (or intellectual property, whatever). Collaborative philosophies such as Open Source are threatening the proprietary projects of even the largest of multinational corporations. The edge soon won’t be in being first and ‘capturing’ the market, it’ll be in being the best and being selected by the market. This means there’s no benefit to rushing the ‘solution’. The best is ‘collaboration’, and it does not compete on an economic basis. This is why companies that have rested smugly in the knowledge that it would be uneconomic for any potential competitor to encroach on their territory are now getting worried: Open Source is apparently uneconomic and yet it is superior. Scary.

Digital workers are gradually mutating into some kind of quasi-communist global workforce and there’s not much we can do about it (apart from work harder and better). How ironic though, that the bourgeois technologists realise Marx’s vision before the plebs…