Perhaps It's Not The Entertainment Industry's Business Model That's Outdated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 What is obsolete is what people think the industry's business model is.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So the problem isn't that the industry's basic business model is obsolete -- it's just that everyone thinks they're actually selling music or movies, and that leads them to do stupid things like put DRM on the music to take away many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
    Movie Seals, 6 Feb 2010 @ 8:47am

    I have been reading about the future of the film industry (and medias in general) for a while now. I have seen a lot of creative ideas (Kickstarter, crowdfunding, Artemis project, CwF+RtB, etc.). I am a filmmaker and I used to earn a decent living selling my films worldwide. In the last few years, the bottom fell out and the prices are dropping so low that making the films become unsustainable. Everybody is scrambling for the exit and looking for a new business model or looking for ways to go back to the status quo. While I agree that it is impossible to stop piracy and pointless to sue for that, heck I agree with most of Tech Dirt assessment about copyright, I however wonder about the viability of a CwF+RtB model and other propositions, like crowd funding (which is a legal grey area and I believe it is only a matter of time before that plug is filled). So as far as I can tell, the reasoning goes a little like this: spend years building an audience for your film, in order to convince them to finance you and your film, keep them posted on the progress, shoot the film, give it for free along with some reasonably priced schwag they can't download, and keep promoting the shit out of it until you eventually (or more realistically hopefully) break even then start again... Fun perhaps, but at this point, it's not a business it is a hobby! You cannot sustain an industry like this! If you factor in all the time and effort to make the film, plus all the time you spend "connecting with fans" and providing them with (free) added value, you end up making less than a quarter of a penny an hour for your time! I love my job but I also need to pay my bills! Under your model, I not only do I need to raise the money to make the film, a difficult proposition even under the "old" model, now I also need to find cash to finance the schwag ( and the warehoouse to store it - you can always go "print on demand" style, but the costs are higher, diminishing your chances of selling it unless you want to make pennies of profit - and let's face it, only the hard core fans will buy the schwag!) and spend even more time connecting with the audience than ever before, plus add all the support time of maintaining what is now also becoming a retail business!!! I fail to see how it is sustainable for indie filmmakers with limited resources to begin with. It does not appear to make economical sense to me. Maybe I am not understanding it right but feel free to enlighten me. I'd like to understand what I am missing.

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