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en-usTechdirt. Stories filed under "techdirt feature"https://beta.techdirt.com/images/td-88x31.gifhttps://beta.techdirt.com/Mon, 13 Feb 2012 08:40:34 PSTHow Being More Open, Human And Awesome Can Save Anyone Worried About Making Money In EntertainmentMike Masnick
https://beta.techdirt.com/articles/20120210/02273417726/how-being-more-open-human-awesome-can-save-anyone-worried-about-making-money-entertainment.shtml
https://beta.techdirt.com/articles/20120210/02273417726/how-being-more-open-human-awesome-can-save-anyone-worried-about-making-money-entertainment.shtmlpretty busy traveling and appearing at various conferences over the last month, including Midem, where I released our latest research report, The Sky is Rising!. I did so with a quick ten-minute presentation about both the state of the industry... as well as the fact that the challenges for anyone in the entertainment industry can be met by being more open, more human and (most of all) more awesome:
It's basically a follow-up presentation to my 2009 presentation, which introduced the Connect with Fans + Reason to Buy formula. Either way, it was fun to be back on the Midem stage, and I was thrilled with the overall response to the presentation. I heard from a lot of folks at the show about how much they liked it and how it gave them a good framework for building out their efforts as artists or as labels. It's always fun to be at Midem and talk to people on the ground about what they're seeing in the industry as well. Two years ago, I had thought that perhaps the industry had reached the bargaining stage, but I may have been wrong (or the five stages of grief aren't really applicable here). There wasn't nearly as much talk about "evil piracy" at this year's Midem... but there was plenty of lashing out about "evil Google" and how it was to blame for everything. If anything, it seemed to be a slip back into the "anger" stage. As we've explained time and time again, this anger seems entirely misdirected.
So it was nice to see so many people at Midem respond positively to my "totally positive" message about where some key opportunities were, by having them focus on how being more awesome to fans and treating them as human really has amazing results.
Separately, while I was at Midem I also did a much more technical "Midem Academy" session that was designed to be a hands-on interactive discussion about specific strategies for alternative business models that don't rely on copyright. That session was 50 minutes long and didn't have the same "entertainment" value, as I was told I had to use their limited Powerpoint format, rather than do my typical style (as seen above). Still, I quite enjoyed that discussion, and ended up spending almost as much time as we spent in the session talking to people and answering questions after the session. For some reason a lot of people were shy to ask questions to the whole group, but wanted to chat afterwards.
There was also a cool "open table" session I did at "Direct2Fan Camp" at Midem, where I got to talk with a bunch of folks who were interested in new business models. That was a lot of fun.
Finally, a couple weeks before that, I was in Washington DC for the Congressional Internet Caucus' State of the Net event, where there was a panel discussion/debate over SOPA, which was recently put online as well. That panel has myself and Steve Crocker (head of ICANN) talking about problems with SOPA/PIPA... and the MPAA's Paul Brigner and the US Chamber of Commerce's Steve Tepp defending SOPA. The panel may seem out-of-date, but it actually took place the day before the mass internet blackouts that effectively killed the bills. So, when this discussion happened, the bills (even in reduced form, without DNS issues) were still very much alive. At this point, the debate might be more interesting in a historical context, rather than a present one:
Either way the discussion was also fun (and, at times, a little heated). I also found it kind of amusing that we were told that there were to be no "opening speeches," and then everyone gave an opening speech. I don't know if it's a DC thing or what, but I had to create an "opening speech" on the fly, though I tried to keep it short.
Either way, it was great to meet many Techdirt community members around the globe at these various events as well, and I hope to see more of you at future events. ]]>make it happenhttps://beta.techdirt.com/comment_rss.php?sid=20120210/02273417726Mon, 25 Jan 2010 10:18:00 PSTThe Future Of Music Business Models (And Those Who Are Already There)Mike Masnick
https://beta.techdirt.com/articles/20091119/1634117011/future-music-business-models-those-who-are-already-there.shtml
https://beta.techdirt.com/articles/20091119/1634117011/future-music-business-models-those-who-are-already-there.shtmlI'm at the Midem conference this week, and in preparing for it, Steven Masur asked me to write up a chapter for a book he was putting together of thoughts from various thinkers for a gathering of the International Association of Entertainment Lawyers (IAEL) here at Midem. Below is what I submitted. If you're a regular reader of the blog, there's little that will surprise you, but even so, it may be a good read, as it's got a whole bunch of different things I've discussed about -- things like "CwF+RtB" all summarized in one single place. Later, I'll do another post on what I discussed this year at Midem, since it builds on what's written below, and digs in much deeper on how to create compelling reasons to buy.
It's no secret that there's a lot of concern these days about what the music industry will look like going forward -- especially from those who work on the label side of the business and have been around for a bit. A variety of things have caused rapid change in the market. Competition from other forms of entertainment, such as the internet, movies and video games, have put more pressure on the industry, as consumers have been presented with significantly more options for their entertainment attention and dollars. And, of course, there's the ever-present specter of unauthorized file sharing -- or, as the industry prefers to call it (accurately or not), "piracy."
While the industry spent many years fighting the rise of the internet as a distribution and promotion method for music, it was eventually forced to recognize it. The labels eventually licensed music to Apple and iTunes (as well as some other stores). It took them way too long to recognize that people wanted DRM-free music, but they've finally come around to recognize that as well.
But the big new questions are all about licensing. New services are starting to show up on the scene, such as the industry's new darling, Spotify. Then there are attempts, such as those by Choruss and Warner Music, to set up something that is somewhat akin to a blanket license. For the most part, the industry hasn't shown much willingness to do these sorts of deals in manners that allow the underlying companies to survive, let alone profit. Numerous innovative startups have suffocated under burdensome licensing terms -- and as each one fails, it just gives consumers fewer and fewer reasons to actually use these services, wondering how long each will last until it goes out of business.
However, there is another solution: stop worrying and learn to embrace the business models that are already helping musicians make plenty of money and use file sharing to their advantage, even in the absence of licensing or copyright enforcement.
In simplest terms, the model can be defined as:
Connect with Fans (CwF) + Reason to Buy (RtB) = The Business Model
Sound simple? It is, if you understand the basics -- and it can be incredibly lucrative. The problem, of course, is that very few seem to fully understand how this model works. However, let's go through some examples.
Trent Reznor, the man behind the band Nine Inch Nails, has done so many experiments that show how this model works that it's difficult to describe them all. He's become a true leader in showing how this model works in a way that has earned him millions while making fans happy, rather than turning them into the enemy.
Reznor has always reached out to his fans, and has an amazingly comprehensive website, with forums, chat rooms and many other ways of interacting. He encourages fans to better connect with each other as well. While companies like Warner Music forced all the music videos of their artists off YouTube for many months, Reznor actually aggregates all the videos his fans take at concerts (he encourages them to bring cameras) on one page on his own website. He does the same for photos. He released a (free) iPhone app that allowed fans to locate each other, and communicate with each other, while sharing photos and videos as well. It's all about connecting with those fans, and helping them better connect with each other, so they feel like a part of a club.
From there, he gives fans real reasons to buy. Lately, he's taken to releasing everything he records for free online, knowing that the music will show up on file sharing sites anyway, so he sees no reason to fight it. Yet, he adds many other options that people might want to buy. With his release of the album Ghosts I-IV, he released all the tracks under a Creative Commons license that allowed anyone to share them online for free. Yet, he also set up some cool "reasons to buy." You could get the two disc CD, if you wanted, for just $10. Above that, though, was a Deluxe Edition Package, for $75. It was, effectively, a box set, but around a single album. Beyond the two CDs, it also included a DVD and a Blu-ray and a photobook of images.
Where the experiment got even more interesting was that he offered up the $300 Ultra-Deluxe Limited Edition Package -- of which there was a limit of just 2,500 available. This was an even more impressive "box" that also included the songs on high quality vinyl, and some beautiful giclée print images. But, most interesting of all was that that limited set of 2,500 were all signed by Reznor himself.
It took just 30 hours for all 2,500 to sell out, bringing in $750,000 in just over a day.
For music he was giving away for free.
But, by connecting with fans, and giving them a reason to buy, they did. In the first week alone, combining all the other offerings for Ghosts I-IV, Reznor brought in $1.6 million. Again, this is for music he was giving away for free.
The idea that you "can't compete with free" or that free means there's no business model is a myth. As Reznor and others have recognized, when the music goes free, it opens up new opportunities for better, stronger, more efficient business models.
Reznor's next album, The Slip, was released just a few months later, and again, was given away entirely free, but it was released the very same day as he announced his next Nine Inch Nails tour. All he asked, if you wanted to download the music, was that you provide an email address. He then gave fans the option of what quality to download the songs -- all the way up to lossless FLAC files. All for free. But, if you downloaded the files, you also learned about the tour, and the tickets were quickly snapped up.
The free music didn't hurt Reznor's ability to earn money. It enhanced it.
By connecting with fans and giving them a reason to buy, he's been able to thrive.
Some have complained that Reznor is not a representative example. After all, that huge fanbase came about in large part because of his success under the "old" model, where he was signed to a major record label who helped promote his album and turn him into an international rock star. While some may quibble with how much the label actually helped Reznor, it's worth exploring how this model has also worked for many other artists -- from the superstars to new up-and-coming acts.
Josh Freese is a session drummer based in Los Angeles, who appears on well over 100 albums and performs with many different bands. He's played with (among others), Nine Inch Nails, Guns 'N Roses, Sting, Devo, The Vandals, the Offspring. Yet, outside of certain musical circles, he doesn't have a huge individual reputation with fans. So, when he released his first solo album, called Since 1972, in March of 2009, he decided to set up a system similar to Reznor's Ghosts I-IV experiment, but made it more fitting to his own personality -- which meant making the options extreme and hilarious.
There were cheap options to get the music and CDs, but at $50, you would also get a personal 5 minute "thank you" phone call, where he said you could ask anything you wanted (his suggestion: "Which one of Sting's mansions has the comfiest beds.") There was a limited $250 option to get lunch with Freese at a PF Changs or a $500 chance to get dinner with him at Sizzler. The lunches sold out in about a week.
Then Freese took the model to a different level altogether. At $2,500 (limit of 5 available), he would provide a drum lesson, where you'd get to keep one of Freese's snare drums. You'd also visit the Hollywood Wax Museum with Josh and one of a rotating list of his rockstar friends (depending on who was available). Finally, you'd get to take and keep any three items from Josh's closet.
At $10,000, you'd get dinner with Josh and a rockstar friend, before hanging out at Disneyland (where Josh's father worked for many years, and where Josh got his start as a professional drummer) with Josh. And at the end of the day, you would get to keep Josh's Volvo station wagon -- after dropping him off at home. Obviously, there was only one of those available.
There were also $20,000 and $75,000 options available, including many more offers, like having Josh join your band or be your personal assistant for a few weeks. You'd also get to go on tour with Josh. He would also write and record a five-song EP about you. A teenager in Florida actually purchased the $20,000 option, and spent a week with Josh, including a night on the Queen Mary cruise ship, a pizza party at Mark Mothersbaugh (of Devo)'s house and a game of mini-golf with the singer from Tool.
Once again, by connecting with his fans, and giving them something of scarce value, Freese was able to create a business model that worked.
Connecting with Fans (CwF) plus a Reason to Buy (RtB) worked again.
However, some still complain that he's a product of the "old" industry, even if he was little known outside of it.
The next example is Jill Sobule, who had a hit song in 1995 with "I Kissed A Girl" (not the Katy Perry song). Since then, however, she's been dropped from two record labels and had two independent labels she was signed to go out of business. When it came time to record her latest album, she decided to get her fans to help fund it. She'd already done an excellent job connecting with her fans, regularly interacting with them on Facebook, where she would hold fun contests each day and actually chat with them and respond to questions.
She launched a website called "Jill's Next Record" that -- like Reznor and Freese -- offered up many options for how her fans could support her to fund a new album. They could pay $200 and get free access to any shows for a year. They could get their name mentioned on a "thank you" song. At $5,000, she would do a home concert at your house. She even noted you could charge for that one, and maybe even make some money. She ended up doing five or six such concerts. At $10,000 (described as the "weapons grade plutonium" level) you could sing on the album. This was meant to be a joke, but a woman in the UK purchased it, and Jill had her flown out to LA where she did, in fact, appear singing backing vocals on the album.
Her goal was to raise $75,000, and she had no idea if she'd be able to reach that number at all. Yet, she broke through that number and ended up raising over $80,000 in just 53 days. With that, she was able to go into the studio and record a full scale production, including hiring famed producer Don Was to handle production.
CwF+RtB worked again.
Again, some complain that Jill is not representative, due to her hit song in 1995 -- though, again, they'll ignore her being dropped from two record labels and and having two others go out of business.
So, let's look at Corey Smith. In the earlier part of this decade, Smith was a high school teacher, playing open mic nights on weekends. But then, he started focusing on building his music career. He started playing numerous live shows, and really worked hard to connect with fans. He gave away all of his music for free off of his website, and used that to drive more fans to his shows. On top of that, he offered special $5 pre-sale tickets to many shows, which has a useful side effect: his biggest fans would convince many others to go as well, building up his fan base, and getting more people to go to more shows. He tried pulling his free music off of his website as an experiment, and saw that his sales on iTunes actually dropped when he did that. In 2008, mostly thanks to live shows, Corey was able to gross nearly $4 million. While giving his music away for free. Connecting with fans and giving them a reason to buy worked wonders.
Jonathon Coulton was a computer programmer. In September of 2006, he decided to write, record and release a new song every week for a year -- with all of the songs being released under a Creative Commons license, so anyone could share them. And share them they did. Coulton became a cult sensation, and was making a good living within months of this decision. His fans were supporting him along the way, even creating music videos for every song he released. He started using services like Eventful to more strategically target concert opportunities. If enough people requested a show in a certain location, he knew it would be profitable and started "parachuting" in to do shows that he knew would make him money. Again, by connecting with fans and giving them a real reason to buy, he was able to build up a great following and make a good living.
Moto Boy is a singer/songwriter in Sweden on the wonderfully named label "Songs I Wish I Had Written." Moto Boy and his label purposely put all of his songs on file sharing networks -- including The Pirate Bay (the label's founder, at times, has shared an office with one of The Pirate Bay's founders). But, Moto Boy has worked quite hard to connect with fans. He has a great website, where fans can interact, and he encourages sharing his music in creative ways. When a bunch of his fans started filming his concerts and putting them on video hosting sites like YouTube and Vimeo, his label found the best such vidoes, and put them all together into a "YouTube concert." Compare that to record labels like Warner Music forcing their content off of YouTube. While all of Moto Boy's music is free, he's continued to connect with fans in fascinating ways. Last year, he began selling wind-up music boxes, that play one of his songs. Just recently, he launched a limited edition (only 25) of those music boxes in beautiful, hand-crafted wooden boxes, signed by Moto Boy, with a CD and the music notation inside the box. Connecting with the fans and giving them a reason to buy beyond just the music has turned Moto Boy into a star in Sweden.
Amanda Palmer is a singer who made a name for herself as a member of the "punk cabaret duo" The Dresden Dolls. While she put out a solo album on Roadrunner Records (a subsidiary of Warner Music), she found that they had little interest in promoting her, and took things into her own hands. She reached out directly to fans on services like Twitter, often setting up "flash gigs" where people would show up wherever she wanted to perform. In June of 2008, one such flash gig at a beach in Los Angeles ended up with an impromptu, beautiful, music video for a song that Palmer had just learned that morning, due to a suggestion from a fan on Twitter. And she's doing a good job making money, as well. Bored in her apartment one evening, she started twittering with fans and came up with a jokey t-shirt suggestion, and set up an immediate store, selling $11,000 worth of t-shirts in days. Another night, she started a live video stream from her apartment, and started an impromptu online auction for various items in her apartment associated with a recent tour, often with a personalized twist. In three hours, she brought in $6,000. Connecting with fans and offering them something fun and unique to buy worked wonders. To date, she hasn't received a single royalty check from Warner Music on her album.
Matthew Ebel is a singer in Boston who started building a fanbase by playing live and actively participating in social networks and other sites. He started regularly performing in Second Life, for example. At one point, he decided to set up a "subscription" backstage pass offer, whereby fans could pay $5, $10 or $15/month to get various benefits -- including access to new songs every couple of weeks, as well as having new recorded shows sent to them. Depending on the level of support, they could get access to special shows, gift bags or other opportunities for unique offers not available to others. Ebel has discovered that he's making enough so that music is his full-time job. Subscription revenues represent nearly 40% of his income, which is about equal to live gigs and sales of CDs and digital songs combined. Connecting with fans and giving them a real reason to buy has made it so that he can have career as a musician.
Moldover is an electronic musician based in San Francisco. Being in such a high tech hub, he had an interesting idea for his next album. Along with the music itself, the CD case would be a working circuit board, with all the songs spelled out in soldered electric circuits. These connected various components to make the CD case itself an instrument. Pushing a button on the side of the case, would light up the center and make a noise, which could be modified through a pair of light sensors, creating a virtual theremin. The case even had a line out jack, so it could be plugged into a computer or an audio system. The CDs themselves were sold for $50, and Moldover discovered the demand was far stronger than he expected. Yes, even though we're told that no one will pay for music (without strict copy protection), this less well known artist is doing brisk business selling $50 CDs.
Of course, these are just musicians, but these sorts of models impact the wider ecosystem. Companies like TopSpin, Nimbit and Kickstarter are making this work today (for artists big and small). TopSpin has helped enable musicians to better connect with fans and give them a reason to buy over and over again -- and found that, when it's done right, people absolutely buy. One of TopSpin's artists recently had an average transaction price of over $100, and multiple artists have seen their average transaction price at over $50. The claim that fans just want stuff for free is not borne out by these examples. Across all of TopSpin's artists, they've seen an average transaction price well over $20 -- more than the cost of your average CD. By enabling bands to connect with fans while giving them something of unique value to buy, beyond just the music, these bands are thriving.
And, of course, there's a role for labels to play as well. Terry McBride runs Nettwerk, a Canadian-based label that has tremendous success embracing these sorts of models with a bunch of different artists. McBride has declared that copyright won't even matter within a decade, and he's acting accordingly. But he's making sure that his acts really do connect with fans. With a recent album release by the hip hop artist K-OS, before the album was released, they released all the stems from the songs to let the fans do their own mixes. These weren't "remixes" because the original mixes weren't even out! Rather than worrying about an album leaking, K-OS and Nettwerk purposely got the core of the music out themselves and let fans do what they wanted with it. They then set up a system to submit the fan mixes and to vote on them, such that the best mixes were then put on their own album, and both the "professional" and the "fan mixed" albums were released at the same time -- leading many fans to buy them both. Both albums, separately, but at the same time, ended up in the top 50 on the charts.
As you look through all of these, some patterns emerge. They're not about getting a fee on every transaction or every listen or every stream. They're not about licensing. They're not about DRM or lawsuits or copyright. They're about better connecting with the fans and then offering them a real, scarce, unique reason to buy -- such that in the end, everyone is happy. Fans get what they want at a price they want, and the musicians and labels make money as well. It's about recognizing that the music itself can enhance the value of everything else, whether it's shows, access or merchandise, and that letting fans share music can help increase the market and create more fans willing to buy compelling offerings. It's about recognizing that even when the music is shared freely, there are business models that work wonders, without copyright or licensing issues even coming into play.
Adding in new licensing schemes only serves to distort this kind of market. Fans and artists are connecting directly and doing so in a way that works and makes money. Putting in place middlemen only takes a cut away from the musicians and serves to make the markets less efficient. They need to deal with overhead and bureaucracy. They need to deal with collections and allocation. They make it less likely for fans to support bands directly, because the money is going elsewhere. Even when licensing fees are officially paid further up the line, those costs are passed on to the end users, and the money might not actually go to supporting the music they really like.
Instead, let's let the magic of the market continue to work. New technologies are making it easier than ever for musicians to create, distribute and promote music -- and also to make money doing so. In the past, the music business was a "lottery," where only a very small number made any money at all. With these models, more musicians than ever before are making money today, and they're not doing it by worrying about copyright or licensing. They're embracing what the tools allow. A recent study from Harvard showed how much more music is being produced today than at any time in history, and the overall music ecosystem -- the amount of money paid in support of music -- is at an all time high, even if less and less of it is going to the purchase of plastic discs.
This is a business model that's working now and it will work better and better in the future as more people understand the mechanisms and improve on them. Worrying about new copyright laws or new licensing schemes or new DRM or new lawsuits or new ways to shut down file sharing is counterproductive, unnecessary and dangerous. Focusing on what's working and encouraging more of that is the way to go. It's a model that works for musicians, works for enablers and works for fans. It is the future and we should be thrilled with what it's producing. ]]>a-thorough-lookhttps://beta.techdirt.com/comment_rss.php?sid=20091119/1634117011Wed, 19 Mar 2008 12:10:00 PDTAdvertising Is Content; Content Is AdvertisingMike Masnick
https://beta.techdirt.com/articles/20080318/004136567/advertising-is-content-content-is-advertising.shtml
https://beta.techdirt.com/articles/20080318/004136567/advertising-is-content-content-is-advertising.shtmlfinally realizing that no one pays attention to online banner ads. For all the hype about online advertising, this one point should have been obvious from quite early on. That doesn't mean that banner ads haven't been lucrative for some publishers who place them on their sites -- but it does call into question how long that sort of advertising will last. Sooner or later the advertisers will recognize that they're not getting much bang for the buck. For publishers (us included, mind you), that could mean that an easy vein for revenue goes away -- but the end result should be better. Companies will start to learn that there are better ways to achieve their goals than banner ads.
There are a few key points in the discussion that shouldn't be surprising to most folks around here, but apparently have just hit the consciousness of ad execs on Madison Avenue:
The captive audience is dead. There is no captive audience online. Everyone surfing the web has billions of choices on what they can be viewing, and they don't want to be viewing intrusive and annoying ads. They'll either ignore them, block them or go elsewhere.
Advertising is content. You can't think of ads as separate things any more. Without a captive audience, there's no such thing as "advertising" any more. It's just content. And it needs to be good/interesting/relevant content if you want to get anyone to pay attention to it.
Content is advertising. Might sound like a repeat of the point above, and in some way it is -- but it's highlighting the flip side. Any content is advertising. It's advertising something. Techdirt content "advertises" our business even if you don't realize it. Every bit of content advertises something, whether on purpose or not.
Content needs to be useful/engaging/interesting. This simply ties all of that together. If you want anyone to pay attention to your content (which is advertising something, whether on purpose or not) it needs to be compelling and engaging.
So, for the "brand" marketers out there who are starting to worry that banner ads aren't particularly effective, it's time to start rethinking how you build a brand along these points. Techdirt even has a way to help you put these ideas into practice. Give us a call -- we'll explain how it works in more detail. So, yes, even this is an "advertisement," but hopefully, it's also useful content.
Other posts in this series:
]]>took-'em-long-enoughhttps://beta.techdirt.com/comment_rss.php?sid=20080318/004136567Thu, 6 Mar 2008 12:38:00 PSTIf Intellectual Property Is Neither Intellectual, Nor Property, What Is It?Mike Masnick
https://beta.techdirt.com/articles/20080306/003240458/if-intellectual-property-is-neither-intellectual-property-what-is-it.shtml
https://beta.techdirt.com/articles/20080306/003240458/if-intellectual-property-is-neither-intellectual-property-what-is-it.shtmlseries of posts on "intellectual property," I wanted to discuss the phrase itself. It's become common language to call it intellectual property, but that leads to various problems -- most notably the idea that it's just like regular property. It's not hard to come up with numerous reasons why that's not true, but just the word "property" seems to get people tied up. There are some who refuse to use the term, but it is handy shorthand for talking about the general space.
The main reason why I have trouble with the "property" part isn't just the fact that it leads people to try to pretend it's just like tangible property, but because it automatically biases how people think about the concept. As I've written before, the very purpose of "property" and "property rights" was to better manage allocation of scarce resources. If there's no scarce resource at all, then the whole concept of property no longer makes sense. If a resource is infinite, it no longer matters who owns it, because anyone can own it and it doesn't diminish the ownership of anyone else. So, the entire rationale for "property rights" disappears.
Even if you buy into the concept of property rights for intellectual output, a look at the history of property rights suggests that the laws are eventually forced to reflect the realities of the market. Our own Tim Lee just wrote up a masterful comparison of property rights in the early United States to copyright laws, noting how property rights in the US needed to change based on usage, rather than forcing everyone to follow the in-place rules. It's not difficult to see how the same may happen when it comes to "intellectual property" as well, if various companies who rely on those laws don't recognize the realities they face.
However, if we don't want to call it "intellectual property" what should it be called? Here are some of the contenders that people toss out:
Intellectual Monopoly: Popularized by economists David Levine and Michele Boldrin, who have a fantastic (and well worth reading) book called Against Intellectual Monopoly. As they point out, patents and copyrights really are monopolies much more than they are property rights. In fact, as we noted early on, that's exactly how Thomas Jefferson and James Madison referred to the concepts when discussing whether or not such monopolies should be allowed by the Constitution.
Intellectual Privilege: This one is being popularized by law professor Tom Bell, who is working on a book by the same title. While this is nice in that it retains the "IP" designation, it's also a bit cumbersome and requires a pretty detailed explanation for anyone to understand. For that reason, it may have a lot of difficulty catching on.
Imaginary Property: Another one that retains the "IP" designation, and is growing in popularity on some blogs. It's also a little troublesome because it's probably the least accurate (and may also imply something entirely different than copyrights or patents). It gets rid of the "intellectual" part, and keeps the property part, even while calling it imaginary. But, intellectual output isn't imaginary. It's very real. That doesn't mean it's property, of course, but imaginary property may set people off in an entirely different manner.
Others: Other suggestions are even less common, but deserve to be mentioned as well, if only briefly. There's use monopoly. Richard Stallman has suggested and rejectedImposed Monopoly Privileges (IMPs) and Government-Originated Legally Enforced Monopolies (GOLEMs), which are cute, but... not very practical. Some have even tried to tie the concept more closely to the "Promote the Progress" constitutional clause -- though, that really only covers copyright and patents. Besides, you again have the problem of it being cumbersome.
None of the Above: There's definitely something to be said for voting for none of the above and clearly separating out each of the different types rather than lumping them all together into a single bucket.
In the end, I don't think that there's really a good answer. I think it makes sense for it to be context specific. Using "intellectual property" too freely is definitely a problem, as it creates a mindset and a framework that isn't accurate for the type of rights provided by patents, copyrights and trademarks. Yet, all of the other options have their own problems as well. I tend to think that whenever possible, it's best to use the specific type being discussed (i.e., patents, copyrights, trademarks, etc.). In general, because of common usage, I don't think it's bad to use the phrase "intellectual property" just so that people know what you're talking about -- but we should be careful to not use it in a way that reinforces the concept that it's property just like other kinds of property.
Links to other posts in the series:
]]>rethinkinghttps://beta.techdirt.com/comment_rss.php?sid=20080306/003240458Thu, 3 May 2007 12:23:55 PDTThe Grand Unified Theory On The Economics Of FreeMike Masnick
https://beta.techdirt.com/articles/20070503/012939/grand-unified-theory-economics-free.shtml
https://beta.techdirt.com/articles/20070503/012939/grand-unified-theory-economics-free.shtmleconomics of goods when scarcity is removed. What I had thought would be a series of 5 or 6 posts, turned into something much longer -- but each week people came up with new questions or discussions or objections, and so I tried to spend some time digging down on various pieces of the economics at hand. However, what I haven't done is tie it all together in one single spot. In the last couple of weeks there's been tremendous confusion among people from Scott Adams to CNN to various others that have made it abundantly clear that the one thing I've failed to do is put the whole concept together in a single place. That's resulted in people being confused about what I'm actually saying -- where they only pick up a tiny piece of the argument or confuse it with the arguments made by others. So, while I still think it was important to go through the details, now is as good a time as any to pull the whole theory together (with some links back to the previous articles in the series).
First off, and this is key, none of what I put forth is about defending unauthorized downloads. I don't download unauthorized content (never have) and I certainly don't suggest you do either. You may very well end up in a lawsuit and you may very well end up having to pay a lot of money. It's just not a good idea. This whole series is from the other perspective -- from that of the content creator and hopefully explaining why they should encourage people to get their content for free. That's because of two important, but simple points:
If done correctly, you can increase your market-size greatly.
If you don't, someone else will do it correctly, and your existing business model will be in serious trouble
If that first point is explained clearly, then hopefully the second point becomes self-evident. However, many people immediately ask, how is it possible that giving away a product can guarantee that you've increased your market size? The first thing to understand is that we're never suggesting people just give away content and then hope and pray that some secondary market will grant them money. Giving stuff away for free needs to be part of a complete business model that recognizes the economic realities. We'll get to more details on that in a second.
From a high-level perspective, though, the reason that giving non-scarce products away for free will increase your market size goes back to the same Thomas Jefferson quote that we kicked the series off with:
If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.
What Jefferson noted is the wonderful feature of a non-scarce, or infinite, good that it is effectively a free resource. Once created, it costs nothing to give to someone else, and you still retain the original. In fact, economists have finally realized that this is the very key to economic growth and progress. The infinite resource known as an "idea" that improves what was already there is what increases the size of a market. Or, putting it another way, that infinite resource of a new idea makes an existing scarce resource more valuable. It's easy to understand that when it's an idea applied to, say, a machine making it more productive -- but it also applies to any infinite resource appropriately bundled with any scarce resource.
The way it works is actually quite easy and fits in with the same basic economics that's always been in place. Knocking down the barriers of artificial scarcity opens up tremendous new opportunities -- just as knocking down the artificial scarcity known as "protectionism" helps to grow markets by creating new opportunities. In this case, those new opportunities have only increased in number as we've gone digital, making more content infinite in nature. Where some people have trouble is that those new opportunities may be in different places than the existing opportunities -- and those new opportunities may not all be capturable by the creator of the content. Indeed, there will be some externalities created by the free flow of an infinite resource. However, the total amount that any content creator can capture is still much larger than it was before. It's one of those cases where getting 20% of a huge pie is much better than getting 90% of a tiny pie.
You just start by redefining the market based on the benefits of what you're providing, rather than the specific product you're selling. If you're focused on selling the benefits, then discovering a better way to sell those benefits is seen as a good thing, rather than a threat. You then break down the different components that make up those benefits that you're selling -- and you begin to recognize that every bundle of goods and services that make up the benefit you're selling has components that are scare as well as components that are infinite. In fact, if you look closely enough, you realize that any scarce product you buy actually has infinite components while any infinite good you see also tends to have scarce components.
Once you've broken out the components, however, recognizing that the infinite components are what make the scarce components more valuable at no extra cost, you set those free. Not only do you set those free, you have every incentive to create more of them, and encourage more people to get them. You break them into easily accessible bites. You syndicate them. You hand them out. You make them easy to share and embed and distribute and promote. And, yet, all the while, you know exactly what scarce resources those non-scarce goods are tied to, and you're ready to sell those scarce resources, recognizing that the more people who are consuming the infinite goods, the more valuable your scarce resource is.
So, the simple bulletpoint version:
Redefine the market based on the benefits
Break the benefits down into scarce and infinite components.
Set the infinite components free, syndicate them, make them easy to get -- all to increase the value of the scarce components
Charge for the scarce components that are tied to infinite components
You can apply this to almost any market (though, in some it's more complex than others). Since this post is already way too long, we'll just take an easy example of the recording industry:
Redefine the market: The benefit is musical enjoyment
Break the benefits down (not a complete list...): Infinite components: the music itself. Scarce components: access to the musicians, concert tickets, merchandise, creation of new songs, CDs, private concerts, backstage passes, time, anyone's attention, etc. etc. etc.
Set the infinite components free: Put them on websites, file sharing networks, BitTorrent, social network sites wherever you can, while promoting the free songs and getting more publicity for the band itself -- all of which increases the value for the final step
Charge for the scarce components: Concert tickets are more valuable. Access to the band is more valuable. Getting the band to write a special song (sponsorship?) is more valuable. Merchandise is more valuable.
What the band has done in this case is use the infinite good to increase the value of everything else they have to offer. They've increased their marketsize by recognizing how they can use the infinite goods as a free promotional resource and made the value of the overall ecosystem around them more valuable. Rather than playing small shows in tiny clubs that don't pay very well, they get to play large venues with bigger covers. It's certainly true that there are some externalities -- where some people will enjoy the music for free without ever taking part in paying for the scarce components. But, when done right, you've increased your market so much that it more than covers the difference. Compare this solution to that of a band that sticks to the old way: they are then limited in the audience that will hear them -- especially as more and more bands give their music away for free. Fewer people will be interested in going to their concerts or buying their merchandise or joining their fan clubs -- when the benefits are so much greater for following other artists that actually give their music away for free. The end result really is a much bigger market with much greater benefit by expanding the market by using infinite goods to make the scarce goods more valuable.
So there you have it. After many months, one single summary of the economics of "free" and how it can be used to anyone's advantage. It's not about defending unauthorized downloads. It's not even about getting rid of copyright -- just recognizing that copyright holders can actually be better off ignoring their own copyrights. It's very much about showing the key trends that are impacting all infinite goods -- and pointing out a clear path to benefiting from it (while making life more difficult on those who refuse to give up their old business models). And we're giving it to you all... for free. So, enjoy.
If you're looking to catch up on the posts in the series, I've listed them out below:
]]>have-fun-with-ithttps://beta.techdirt.com/comment_rss.php?sid=20070503/012939Thu, 1 Mar 2007 12:47:24 PSTAn Economic Explanation For Why DRM Cannot Open Up New Business Model OpportunitiesMike Masnick
https://beta.techdirt.com/articles/20070301/005837/economic-explanation-why-drm-cannot-open-up-new-business-model-opportunities.shtml
https://beta.techdirt.com/articles/20070301/005837/economic-explanation-why-drm-cannot-open-up-new-business-model-opportunities.shtmlthe economics of non-scarce goods, I wanted to take a look at an issue that I mentioned in passing earlier this week concerning the ongoing insistence among the entertainment industry (and the DRM industry) that DRM somehow will open up new business models. I'd like to explain why, economically, that doesn't make sense.
First, to clarify, I should point out that, technically, I mean that it doesn't make sense that DRM could ever open up feasible or successful business models. Anyone can create a new unsuccessful business model. For example, I'm now selling $1 bills for $1,000. It's a new business model (well, perhaps not to the dot coms of the original dot com boom), but it's unlikely to be a successful one (if you disagree, and would like to pay me $1,000 for $1, please use the feedback form above to make arrangements). However, for a new business model to make sense, it needs to provide more value. Providing more value than people can get elsewhere is the reason why a business model succeeds. So, any new business model must be based on adding additional value.
The good news is that value is not a scarce concept. Unfortunately, there are too many in this world who view value and growth as a zero-sum game. They believe that there's some fundamental limit on the possibility of adding value, and therefore, business models are about moving around a limited amount of value, rather than expanding it. It's the same fallacy facing those who have trouble understanding zero and infinity in economics. The economist Paul Romer's discussion on Economic Growth offers a concise explanation for this:
Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.
Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.
Note that it's the non-scarce products, the recipes and the ideas, that helps expand the value of the limited resources, the ingredients. You expand value by creating new non-scarce goods that make scarce goods more valuable -- and you can keep on doing so, indefinitely. Successful new business models are about creating those non-scarce goods and helping them increase value. Any new business model must be based around increasing the overall pie. It's about recognizing that creating value isn't about shifting around pieces of a limited economic pie -- but making the overall pie bigger.
DRM is fundamentally opposed to this concept. It is not increasing value for the consumer in any way, but about limiting it. It takes the non-scarce goods, the very thing that helps increase value, and constrains them. Those non-scarce goods are what increase the pie and open up new opportunities for those who know where to capture the monetary rewards of that value (within other limited resources). DRM, on the other hand, holds back that value and prevents it from being realized. It shrinks the pie -- and no successful business models come out of providing less value and shrinking the overall pie. Fundamentally, DRM cannot create a successful new business model. It can only contain one.
If you're looking to catch up on the posts in the series, I've listed them out below:
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:
To explain this, it helps to go back to your basic economics class and recognize that, in a competitive market, the price of a good is always going to get pushed towards its marginal cost. That actually makes a lot of sense. As competition continues, it puts pressure on profits, but producers aren't willing (or can't for very long) keep selling goods at a direct loss. Sunk (or fixed) costs don't matter, because they've already been paid -- so everything gets pushed to marginal cost. That's pretty well accepted by most folks -- but it's still misinterpreted by many. They tend to look at it and say that if price equals marginal cost, then no one would ever produce anything. That's a misconception that is at the heart of this whole debate. The problem is that they don't add in the element of time, and the idea that what drives innovation is the constant efforts by the producers in the space to add fleeting competitive advantages (what some economists have annoyingly called "monopolistic competition," a name that I think is misleading). In other words, companies look to add some value to the goods that makes their goods better than the competition in some way -- and that unique value helps them command a profit. But, the nature of the competitive market is that it's always shifting, so that everyone needs to keep on innovating, or any innovation will be matched (and usually surpassed) by competitors. That's good for everyone. It keeps a market dynamic and growing and helps out everyone.
So, let's go back to the "can't compete with free" statement. Anyone who says that is effectively saying that they can't figure out a way to add value that will make someone buy something above marginal cost -- but it's no different if the good is free or at a cost. Let's take a simple example. Say I own a factory that cost me $100 million to build (fixed cost) and it produces cars that each cost $20,000 to build (marginal cost). If the market is perfectly competitive, then eventually I'm going to be forced to sell those cars at $20,000 -- leaving no profit. Now, let's look at a different situation. Let's say that I want to make a movie. It costs me $100 million to make the movie (fixed cost) and copies of that movie each cost me $0 (marginal cost -- assuming digital distribution and that bandwidth and computing power are also fixed costs). Now, again, if the market is competitive and I'm forced to price at marginal cost, then the scenario is identical to the automobile factory. My net outlay is $100 million. My profit is zero. Every new item I make brings back in cash exactly what it costs to make the copy -- so the net result is the same. It's no different that the good is priced at $0 or $20,000 -- so long as the market is competitive.
So why aren't the same people who insist that you can't compete with free whining about any other competitive market situation? Because they know that, left unfettered, the market adjusts. The makers of automobiles keep trying to adjust and differentiate their cars through real and perceived benefits (such as brand) -- and that lets them add value in a way that they can make money and not have to worry about having products priced at marginal cost. If a company can't do that, it goes out of business -- and most people consider that a good thing. If you can't compete, you should go out of business. But, when it comes to goods with a $0 marginal cost, even though the net result is identical to goods with a higher marginal cost, suddenly people think that you can't compete? The $0 price makes no difference. All that matters is the difference in price you can charge to the marginal cost. Everyone else learns to differentiate -- why can't those who produce infinite goods do the same?
The answer is that they already do -- even if they don't realize it. Why do movies still cost more than $0? Because there's additional value bundled with the movie itself. People don't buy "a movie." They buy the experience of going to the theater. People like to go out to the movies. They like the experience. Or people buy the convenience of a DVD (which is another feature bundled with the movie). They like to buy DVDs (or rent them) in order to get the more convenient delivery mechanism and the extra features that come with DVDs. In other words, they like the differentiated value they can get from bundled goods and services that helps justify a price that's more than $0. Just as people are willing to pay more than the marginal cost (in some cases a lot more) to get that car they want, they're willing to pay more for a bundled good or service with content -- if only the makers of that content would realize it.
So the next time someone says "you can't compete with free" ask them why? Every company that's in business today competes with those who aim to undercut the price of their product -- and the situation is absolutely no different when it's free. It's just that people get blinded by the zero and forget that the absolute price is meaningless compared to the marginal cost.
If you're looking to catch up on the posts in the series, I've listed them out below:
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:
The key actually isn't in zero, but zero's flip side: infinity. Just like many early societies had tremendous difficulty in coming to understand the concept of zero, the concept of infinity was incredibly difficult to grasp. Just as with zero, certain aspects of mathematics and physics stalled out without an understanding of infinity -- and it would be a shame if the same happens for economics. However, just as with zero, many who look at the economics get scared off by infinity and assume it must break otherwise proven concepts. Throw an infinity into the supply of a good and the supply/demand curve is going to toss out a price of zero (sounds familiar, right?). Again, the first assumption is to assume the system is broken and to look for ways to artificially limit supply.
However, the mistake here is to look at the market in a manner that is way too simplified. Markets aren't just dynamic things that constantly change, but they also impact other markets. Any good that is a component of another good may be a finished good for the seller, but for the buyer it's a resource that has a cost. The more costly that resource is, the more expensive it is to make that other good. The impact flows throughout the economy. If the inputs get cheaper, that makes the finished goods cheaper, which open up more opportunities for greater economic development. That means that even if you have an infinite good in one market, not all the markets it touches on are also infinite. However, the infinite good suddenly becomes a really useful and cheap resource in all those other markets.
So the trick to embracing infinite goods isn't in limiting the infinite nature of them, but in rethinking how you view them. Instead of looking at them as goods to sell, look at them as inputs into something else. In other words, rather than thinking of them as a product the market is pressuring you to price at $0, recognize they're an infinite resource that is available for you to use freely in other products and markets. When looked at that way, the infinite nature of the goods is no longer a problem, but a tremendous resource to be exploited. It almost becomes difficult to believe that people would actively try to limit an infinitely exploitable resource, but they do so because they don't understand infinity and don't look at the good as a resource.
If you're looking to catch up on the posts in the series, I've listed them out below: