Perhaps It's Not The Entertainment Industry's Business Model That's Outdated

from the just-its-understanding dept

After last week's post in my ongoing series about the economics of non-scarce goods, where I discussed the ridiculousness (economically speaking) of saying you can't compete with free, a friend emailed me to make an interesting point. He suggested that despite the common wisdom many of us have suggested, the entertainment industry's business models aren't actually obsolete. What is obsolete is what people think the industry's business model is. And, the worst thing is that the people most guilty of this are the industry execs themselves.

A few weeks back, one of the posts in this series was about recognizing what market you're really in. I used the example of horse-drawn carriage makers, who mistakenly believed they were in the horse-drawn carriage market, rather than the personal transportation market -- leading to troubles once the automobile came around. There's an important hidden lesson in that. You can actually be succeeding in a market you don't think you're in.

When it comes to the entertainment industry, that may be exactly the case. We've been arguing that there are plenty of business models that don't involve actually selling the content, but involve selling other, related products that are made valuable by the content. In fact, that's what both the music and the movie industry already do. Everyone may think that you're buying "music" or "movies" but that's very rarely what you're actually buying. You're buying the experience of going to the movies. Or the ability to have the convenience of a DVD. Or the convenience of being able to listen to a song on your iPod. And, in many cases, it's not just one thing, but a bundle of things: the convenience of being able to hear a song in any CD player, combined with a nice set of liner notes and the opportunity to hear a set of songs the way a band wants you to hear. It can be any number of different "benefits" that people are buying, but it's not the "movie" or the "music" itself that anyone is buying.

So the problem isn't that the industry's basic business model is obsolete -- it's just that everyone thinks they're actually selling music or movies, and that leads them to do stupid things like put DRM on the music to take away many of those benefits, or making the movie-going experience that much worse by treating everyone like criminals. What they're doing, and why it's hurting them, is that they're actually taking away the features that they used to be selling -- and missing out on opportunities to sell other benefits as well. So while we may still point out that the basic business model is obsolete, it may be more accurate to simply say that it's the understanding of the business model that's really out of date.

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
Step One To Embracing A Lack Of Scarcity: Recognize What Market You're Really In
Why I Hope The RIAA Succeeds
Saying You Can't Compete With Free Is Saying You Can't Compete Period
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  1. identicon
    Dean Procter, 24 Mar 2008 @ 7:32pm

    Entertainment industry dinosaurs dying in the digi

    I have a little first hand knowledge of the entertainment companies at the dawn of the digital age. I foresaw the dilemma they would be faced with by the internet and set about to offer a solution in he mid 90's. It was: Give the customer what they want.

    I offered to enhance every CD (no DVD's yet then) with full screen video and web links to the record company/band website and make it easy to 'connect' the consumer to the artist.

    It was the first full screen video on music CD's playable on 486 PC's so it was a bit of a novelty at the time and was incentive to put the music CD in your PC, whereby it became even easier to subscribe to the artist, order more product and interact.

    The product would consist of digital downloads, custom CD's and custom mixes of your chosen artists.

    I offered the record companies more money than they were making, the artists more money, and the consumer lower prices and more convenience.

    The response was interesting. Dreamworks, Geffen, Universal all loved the idea with Paul Kreiger of Universal championing it. Sony tried a couple and decided they could do it themselves (wrongly), BMG wanted me to do it just for them(Germans of course).

    I made a lot of money quickly doing interactive CD's and websites but the companies just didn't get it. I had everything covered, - DRM (of a sort - ie if you copied your album and sold it - we would catch you), the artist would get paid for their work - quickly, and the consumer would get what they wanted easily.

    In the end the entertainment companies just wouldn't get on board, and I honestly believe it was because they were ripping off the artists so much that they couldn't let it go.

    At the last boardroom meeting with the entertainment company execs I told them that if they didn't do it with me it would be 'done to them' for free and they'd lose billions. 3 months later there were 300,000 shared tracks on the college networks and the rest is history.

    There is no going back, they are in decline. The only chance they had was to make it easier and cheaper for consumers, instead they made it impossible and expensive while the pirates and people just plain sharing made it easy and free and sent them to the wall.

    New artists realise the opportunity that the internet provides and they don't need the entertainment companies to make a good living.

    There is room for one big player to win the whole prize but it's name isn't SonyBMG, Nokia, Apple or any of the existing players. Just like last time - the new way will leave them far behind - and there is a new way coming - which will make it easier for consumers, to get quality, not proprietary, the consumer won't be the enemy and the artists will get paid quickly (instantly).

    You just can't beat easier - except sometimes free can for a short while. That business model isn't open to the dinosaur entertainment companies and neither is the new way coming. As for the consumer - just give them what they want and make it easy and they'll happily pay.

    Mark my words.

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