Step One To Embracing A Lack Of Scarcity: Recognize What Market You're Really In

from the not-as-hard-as-you-think dept

This is my latest post in the ongoing series of posts about economics when scarcity is removed from certain items. Two weeks ago, in my post about the 17th century button makers and how they were quite like the RIAA in many ways got plenty of attention, and that kicked off a fun discussion. Many people (phew) saw the connection, but a few did not, and claimed that the situations were entirely different. The button makers, they claimed, were trying to stop anyone else from making buttons, while the RIAA has no problem with anyone else making music. Of course, this ignores the specific similarities (crying out for government help to defend a business model, treating customers like criminals, wanting to invade people's private homes, etc.) that were pointed out in the post -- but more importantly, it highlights one of the biggest problems that many who are in industries threatened by disappearing scarcity face: they don't actually understand the market they're in.

It's interesting to note that it wasn't horse-drawn carriage makers who became successful automobile companies. No, they ended up going out of business, because they too narrowly defined their markets as being the horse-drawn carriage market, rather than the road-based transportation market, or just the transportation market. Of course, that was something the railroad businesses could have claimed as well -- but they also were too narrowly focused on being in the railroad business (and, some say, were the inspiration behind passing certain anti-automobile laws early on in the automobile's history). The horse-drawn carriage makers, however, very much should have realized they were in the transportation market, and should have been always looking for ways to step up to provide better and better systems for local transportation. People weren't buying horse-drawn carriages because they were horse-drawn carriages, but because they could use them to more easily get somewhere. Thus, when automobiles hit the scene, the smart horse-drawn carriage maker wouldn't have looked at it as a threat, but as an opportunity to provide a better transportation system to his customers. But, that only works if he correctly defined the market.

In the case of the RIAA, contrary to the complaints in that button-maker post, they are not actually "making music." The musicians make the music, and the RIAA hardly represents the musicians. The RIAA is the "recording industry" and they represent the interests of the record labels who, while they may claim are in the music business, appear to believe they're really in the "music selling business" rather than (as they really are) the "music entertainment business." They believe their job is to distribute music, promote it, and get people to buy it. They make money by keeping that system closed and locked down. If they recognized they were really in the "entertaining people with music business" they should only be ecstatic about new technologies and services that make their job easier. In the case of file sharing systems, that was a tremendous new distribution and promotion system all rolled up in one -- and it cost them nothing. What a tremendous resource -- if they were actually in the music entertainment business and wanted to make it easier to promote and distribute music. They could leverage that infinitely available, free resource to promote and distribute music and musicians, and then use that to make money in other ways (concerts, sponsorships, endorsements, appearances, fan clubs, etc., etc., etc.,) But by limiting the definition of what business they were in by what their existing business model said they were selling, they chose to fight it.

The same is very much true of the MPAA, who represents the movie studios, and still seems to think they're in the business of selling movies. That's not true. People don't go out to the movies because it's "a movie." They go out to the movies to be entertained. They're in the entertainment business, and the industry is falling down miserably by making the movie going experience dreadful. They've taken the entertainment part out of the entertainment business as they focus so desperately on holding onto the "movie selling business" and in the process, they're finding it actually tougher to sell movies.

So, when it comes to the button-makers (who didn't realize they were in the clothing accessories business), it really is the same situation. The entertainment industry cartels aren't really fighting "competition." They're simply scared to death of the opportunity that's staring them in the face, because they think they're in a different business than they're actually in.


If you're looking to catch up on the posts in the series, I've listed them out below:

Economics Of Abundance Getting Some Well Deserved Attention
The Importance Of Zero In Destroying The Scarcity Myth Of Economics
The Economics Of Abundance Is Not A Moral Issue
A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy
A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie
Why The Lack Of Scarcity In Economics Is Getting More Important Now
History Repeats Itself: How The RIAA Is Like 17th Century French Button-Makers
Infinity Is Your Friend In Economics
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  1. identicon
    Mark, 26 Jan 2007 @ 3:13am

    Alternatively

    It might be fairer to say that the recording industry is in the exploitation business. They exploit the copyright laws, they exploit the artists and they exploit the music fans.

    They exploit the copyright laws which were originally designed to protect the interests of authors and give them time to make some money from their work before it became part of the public domain.

    Unfortunately the laws were badly designed and didn't contain a clause saying that copyright was not transferable. Soon unscrupulous publishers were bullying authors to sign over copyright in exchange for "backing".
    This became the model for the "major record deal" where an artist is coerced into signing over copyright in much the same way. These companies can claim to "own" musical compositions despite the fact that they had no part in the creative process and in most cases the people making all the real money have no musical talent whatsoever. Is it any wonder that these companies keep wanting to extend the copyright period?

    They exploit the artists because most of the artists only see between 8 and 14% of the money made from their creations.

    So on average the major record companies will take 90% of the money and then in the majority of cases will also offset as much of the production cost onto the artist as possible.

    This is probably why it has become fashionable for successful artists to form their own record companies (can't blame them really).

    The recording industry exploits the fans through sheer bald faced profiteering. Despite the fact that the costs of production and distribution have been dropping for years, the retail cost of a CD has continued to climb.

    CDs used to be expensive to manufacture but they are not now. Producing a good recording was expensive and time consuming, now with digital recording and mastering it is quick and easy (all the imperfections can be removed by software). Distribution used to be expensive, but the internet, supermarkets etc. has helped to reduce these costs too, there is no longer a need to own and run a chain of record stores.

    Yet the prices just kept going up and no doubt would have continued to do so if the record companies had not lost control of distribution to the file sharing networks (about 6 years ago). Since this happened average retail cost of a CD has dropped. Of course the record companies are throwing tantrums like the greedy, spoiled children that they are and they are claiming that this is a terrible thing and that they are being "devastated". However the music fans are benefiting from the lower prices and greater choice of music that is available and the artists have started to benefit too. Using digital editing software they can make quality recordings of themselves very cheaply and then promote and distribute them using the internet. Thus bypassing the record companies completely. A lot of the new tech savvy generation of artists have started to realise this and have already become famous before they even bother to negotiate a record deal. Obviously, this gives them more leverage and allows them to negotiate a much better deal (so, I reckon that the only people losing here are the people that didn't deserve to win in the first place, but I don't feel sorry for them because they are all filthy rich anyway)

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