Dear Recording Industry: Three Strikes Won't Save Your Business

from the please-stop-thinking-it-will dept

At this year's Midem, there was still a fair bit of talk about the various "three strikes" proposals around the world that get ISPs to kick people accused (not convicted) of file sharing offline. To hear supporters tell it, the concept of "three strikes" is gaining widespread support and is really going to save the industry. Of course, the reality is quite different. Michael Geist details the state of such proposals around the globe, noting that while a few countries have implemented them, many others are rejecting them. At the same time, he highlights the high costs of implementing such proposals -- without any evidence that they will actually get people to buy more music. While supporters of such proposals may think that there's momentum behind them, if you look at the details, it seems like pretty limited support, and the plans that are in place don't seem likely to do much other than frustrate and annoy people.

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Should IT Be Run As A Business?

from the yes-and-no dept

This post is part of the IT Innovation series, sponsored by Sun & Intel. Read more at ITInnovation.com. Of course, the content of this post consists entirely of the thoughts and opinions of the author.

Slashdot points us to an article trying to debunk the concept that "IT should be run as a business," with "employees" as customers. Of course, like many catchy phrases, I don't think that many IT departments really followed this concept to the ridiculous logical conclusions. It does have some useful concepts -- such as giving IT folks more reason to actually listen to what employees have to say. But it misses the larger point, that IT is there to serve the business as a whole, and that means making the overall business more efficient, while keeping it secure, and that can sometimes conflict with the views of individual employees.

The argument made in the article, and it makes sense, is that IT really needs to be much more tightly integrated with the overall business, to really understand how to help. When it's viewed as a separate silo or even "business," then the solutions that come out of IT really aren't as helpful as can be. Separately, it also increases the likelihood of outsourcing the IT function, since it can be easily "separated." But by more closely integrating the IT function into actual business processes, not only does IT make itself more indispensable, it can focus on creating actual process improvements and solutions, rather than just taking a list from someone of what they think they need (perhaps without understanding what the technology enables) and delivering it to spec.

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Understanding The Decline And Fall Of The Major Record Labels

from the perhaps-it-was-inevitable dept

There's a fascinating, and well sourced, editorial over at Hypebot by Kyle Bylin, suggesting why the major record labels have had so much trouble adapting to these changing times. Bylin argues, convincingly, that a big part of the problem was that as the record labels got bigger and bigger, they focused solely on the "music as commerce" side of things, ignoring the role of "music as culture." Obviously, music as commerce is an important part of the music business, but if you ignore the cultural importance of music (except, of course, when lobbying the government for more protections) you miss what's actually happening in the marketplace: how people are connecting with the music, and what they're doing (and want to do) with the music. Here's a snippet:

As the record industry moved through this stage there was a decline in learning orientation -- in learning what fans actually wanted -- both in terms of how they consumed music and what they were willing to pay for. So to, they began to discount the role that luck played in their success, to assume that the mass-marketing successes that occurred near the end the CD boom, which sold 3-4 million copies, applied to the natural laws of the universe, rather than that of a relatively short-lived phenomenon. This addiction to blockbuster artists is what characterizes the second stage of decline, which Collin's deemed The Undisciplined Pursuit of More. Here, the record industry started out on an unsustainable quest, and, because of their huge successes, they were pressured to grow.

Having reached the peak of the CD boom in 1999, the record industry had become a nearly $15-billion-a-year juggernaut, but under the pressure for more growth they collapsed, and, in the process, a vicious cycle of expectations had been set that strained the artists, the fans, the culture, and their systems to the point of breaking. Since record industry was unable to deliver new music with "consistent tactical excellence," they began to fray at the edges. Disruptive technologies were released, an epidemic of file-sharing proceeded, and, at this critical juncture, vested interests of music executives struggled and competed to achieve repetitive consumption through obsolescence. But these executives were too late, as the record industry, by externalizing the blame for their decline in sales, had already started to show symptoms of stage three, Denial of Risk and Peril.

Music executives began discounting negative data, amplifying positive data, and putting a positive spin on ambiguous data. In stage three, Collin's argues that those in power start to blame external factors for setbacks -- "or otherwise explain away the data" -- rather than accepting responsibility and confronting "the frightening reality that their enterprise may be in serious trouble." Right away, the Internet and file-sharing became easy scapegoats for the decline in sales that the record industry faced.

There's nothing all that surprising in the essay, but it's nicely written and explained. Well worth reading the whole thing.

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Getting The Music Business Over The 'But We Must Sell Music' Hump

from the it's-not-all-there-is dept

On Monday, I attended and participated in the always excellent twice yearly event, the SF Music Tech Summit. As always, it was a fun time, full of interesting people. While smaller than some of the big music events, pound for pound, I tend to end up in a very high percentage of fascinating chats with people at SF Music Tech. The panel I was on was the first in the morning, and was officially called "meet the press," even though at least two of the five panelists (myself included) don't consider ourselves press. I didn't mean to stir up much controversy (never do), but I apparently got a few vocal folks in the audience riled up on a few points. The one that got some attention on Twitter, was the claim that live music was growing. A few folks started screaming and no one then let me back that up, but the numbers don't lie. A lot of people came up to me afterwards with stories of success by focusing on live music, and I even heard from some folks who are involved in organizing live shows who say that the "complaints" about live shows tend to come from those who focus only on a subset of live venues that have struggled lately -- but that the overall live market is thriving (as the numbers show).

However, there was a second point that I later tried to make that again I never had a chance to follow through on, and wanted to do so here. People were asking about what business models are working for musicians, and I started listing out some examples, and a loud gentleman in the front row yelled out that the business model that had to be at the center was selling music. I responded with what I thought was an important question: "Why?" and again people started yelling. Of course, no one answered the question, and then the panel shifted gears to another topic.

But, the reaction from the crowd on that question cemented for me one of the biggest reasons why some in the industry have struggled to grasp new business models. As I discussed in my NARM presentation a few months ago, selling music is just not a good business model, but it doesn't mean there aren't good, very profitable, music business models. It's just that selling music isn't a very good one. Instead, you need to learn to use the music (which still needs to be good, and is still the central reason why these other business models work) to sell something else -- something scarce, which can't easily be copied. That can be attention, access, time, creative ability, cool physical products, whatever. All of those things are made more valuable the more popular the music is, and you can build all sorts of powerful and immensely profitable businesses once you recognize that.

But if you still think that selling the music or making money directly from the music has to be at the "center" of any music business model, you're shutting yourself off to the largest opportunities out there. But, the thing is, music has always been a product that makes something else more valuable. While there was some disagreement on the panel from someone about how record stores were profitable in the 70s, that's a case where the music was making the vinyl (and later, plastic) more valuable. Today, it makes iPods more valuable. As the big box retailers know, it acts as a loss leader to bring people in to buy higher margin goods. Music is great at selling other, higher margin things. If you ignore that in the music business model, you're missing the big opportunity.

This isn't to downplay the importance of music, or say that the quality of music doesn't matter. It absolutely does. But the music is not the scarcity, and you don't make money off of selling something that's abundant. You use the abundance to figure out what other scarce goods it makes more valuable and you sell those. So, people can complain and shout all they want, but it doesn't change the basic fact that until you recognize that selling music directly just isn't a very good business model, you're limiting your market tremendously.

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Other Legal Work Slow? Start A Practice To Help Patent Trolling

from the not-good dept

The economy still isn't doing so great, and that impacts everyone -- even lawyers. So what are they to do in weak times? Eric Goldman points out that in the past, they'd become bankruptcy lawyers, but this time around, it looks like some are realizing a more lucrative strategy is to get involved in patent trolling -- though they prefer to call it "IP monetization." This is, of course, just a continuation of the whole ridiculous focus on squeezing cash from unused or ignored patents, following the publication of the book Rembrandts in the Attic, which kicked off this effort.

From an economic standpoint, this activity is a pure dead weight loss on economic activity. There is nothing good that comes from it. You basically have companies that have ignored a patent they got for whatever reason, suddenly rediscovering it and using it to go after totally unrelated companies who actually innovated and brought products to market (almost always with no knowledge whatsoever of the questionable patent in the first place). And suddenly the actual innovators have to pay up to a company that did absolutely nothing with the invention.

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Suing For Patent Infringement No Replacement For Actually Building A Real Business

from the more-focus-on-executing,-less-on-suing dept

TiVo has been spending a lot of effort suing others for patent infringement, but apparently not very much on actually improving their own services and giving customers a reason to buy them over the competition. So while it may be winning some of its patent lawsuits, it hasn't helped much for the business, which is rapidly bleeding customers and losing marketshare. TiVo basically created this market and owned it for years -- but then got complacent. Now, since it can't compete, it's gone to a litigation strategy. Perhaps it should have focused more on providing value and competing rather than suing.

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If You Want To Make Money As A Musician You Need To Be A Musical Entrepreneur

from the that's-how-it-works dept

One of the common criticisms we hear around here when we talk about the various business models that are working for more and more musicians these days, is that it's somehow "unfair" or even "wrong" that musicians need to think about business models these days, since they should just be spending all their time creating music. Of course, this assumes (incorrectly) that the same thing wasn't true in the past as well. For years, musicians have always teamed up with business managers and music labels for that very reason: to delegate some of the business tasks. That doesn't change in the modern era. What does change is that the different opportunities have grown significantly. Either way, Andrew Dubber (who's always worth paying attention to on these topics) recently put a comment on a blog post on this particular topic that is so good it shouldn't be buried as just a comment, so I'm going to highlight some of the key parts here:

Musicians deserve more money than they get. Most train harder and for longer than brain surgeons in order to do what they do, and then they earn less than checkout operators for what they do. I strongly believe that more money should go to more musicians more often than it does....

Making music is not (usually) a job of work. It is a creative act. You don't have the RIGHT to make money from your music. You only have the opportunity.

If you make music speculatively - that is, you create it in the hopes of making money from it, then you are a music entrepreneur. As such, entrepreneurship rules apply.

You may invest a good deal of energy, effort and expense in your creative ideas. You may make a lot of money. You will probably make none. But nobody OWES you money just because you put the work in.

If your business model is to grow and sell oranges, then it's no good picking the oranges, then leaving them on the footpath outside your house with a price tag on each one. It doesn't matter how great your oranges are, or how hard you've toiled in your garden. Someone WILL take your oranges. Some will get kicked to the side of the road. Some will get stepped on. But it's not because people are immoral and don't understand or appreciate fruit properly.

If you wish to be reliably rewarded for your music, then get employed to make music as your job.

Bingo. That's the point I've been trying to make for years on this, but said much better than I could express it. He then goes on to make another point I've tried to make in the past, which is that if you compare the situation today to what it was in the past, there are so many more opportunities to make money. In the past, it was nearly impossible to make money on music because there were so many gatekeepers.

The odds are stacked against you. History is littered with musicians who are disillusioned, embittered and broke. This was true before the internet just as it's true now. The internet is neither your saviour, nor your enemy.

Let me make that bit clear: prior to the internet, most people spent NO money on music. If they bought a record in a year, it was a gift for a nephew (and it was usually rubbish). Some people spent a lot of money on music, because it was tied up with cultural things like identity that they were really invested in.

Back when you needed a record label to just be heard, it was a lottery. The odds were bad, the lottery tickets were expensive, and most of the prizes - if you did happen to win - were just awful. Now you don't need to play that game - but you need to be smart and you need to understand what the rules of the new game are.

You CAN, of course, get signed to a record label (and that lottery is still in play) but you can also be an entrepreneur. I recommend the latter - but not because it guarantees you money.

But the simple fact is that you don't become a successful entrepreneur by making things that people will not pay for, insisting that they should, and then complaining that their morals are to blame. They may not share your morals, but that's not even the point.

It's not their job to understand your needs. It's your job to understand theirs.

You become a successful entrepreneur by meeting people's needs and wants, solving a problem for them and doing it in a way that allows you to make money.

I've said it before and I'll say it again. Even if it was true that all the people you wish to target with your art are immoral thieves who you would never invite into your home - why would you insist on trying to change their behaviour as part of your business strategy?

And he concludes by pointing out (as we have in the past as well) where the real "sense of entitlement" comes from:

You may make great and interesting music, and put on an amazing show with amazing costumes.... But decrying a sense of entitlement among those who won't pay you for what you insist on doing is back to front.

The people with the weird sense of entitlement are the ones who stamp their feet and say 'look at all this hard work I put in - where's my money?'

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Comcast Exec: We Need To Change Customer Behavior, Not Our Business Model

from the good-luck,-buddy dept

Brooks writes "Speaking at a cable broadcaster's summit, Steve Burke, Comcast's COO, said: "An entire generation is growing up, if we don't figure out how to change that behavior so it respects copyright and subscription revenue on the part of distributors, we're going to wake up and see cord cutting." How's that for cart before the horse?

His ultimate goal -- to maintain or increase revenue for Comcast -- makes perfect sense, and is positively what a cable COO should be focused on. From there on out, though, he's off in the weeds. How about offering this new generation new and innovative services that are worth paying for? That's challenging, of course... but how challenging will it be to change the next generation's behavior "to respect subscription revenue." Yikes.

How many consumers, in any market, are focused on "respecting" vendors' revenue streams? How, exactly, does he propose to effect this sea change? And why not just develop products that consumers will willingly pay for, rather than trying to change consumer behavior in such a fundamental way?"

The quotes really are quite stunning. Burke basically seems to be saying the focus needs to be on figuring out ways to get consumers to change, rather than changing to match what customers want. A business model based on going against what consumers want doesn't seem likely to last that long.

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Protecting Copyright Often Seems To Fly In The Face Of Good Business

from the bingo dept

Dave Title recently had a post on his My Media Musings blog, where he talks about a student "lip dub" music video, which he notes almost certainly violates copyright law, but that it would be really dumb for the copyright holder (in this case, whoever holds the copyright on music by the Black-Eyed Peas) to enforce. Then Title busts out a line that should be repeated often:

Protecting a copyright often seems to fly in the face of good business.

Bingo. This is an argument we've been making for over a decade. There are many in both business and law who seem to assume that because you can enforce a right, it means that it always makes business sense to enforce that right. And yet, as we see over and over and over again, it's quite often not the case at all. In an awful lot of cases, very strong arguments can be made that the reverse is true and that protecting your copyright actually does a lot more damage than good.

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Creating vs. Running A Business

from the a-good-discussion dept

When we talk about business models here, we often use music as an example, since the music industry is facing many of these issues a bit ahead of the curve from many other industries. However, some other industries are actually facing many of the same issues, and it's good to see what they have to say as well. For example, one of the key complaints that many people have when we show and discuss models that involve connecting with fans, is this odd claim that doing so means that the "creators" have to spend all their time "connecting" or "selling" or "running a business," rather than doing more creating. However, I've never thought that to be the case. I've said from very early on that the real point is that an artist can do that if they want, but that partners can and have sprung up to fill those roles. This is why I still think there's a big role for a "record label" to play, in handling much of that for the artists, so they can continue to focus on creating.

JLJ points out that a similar debate appears to be happening in the webcomics community, with Scott Kurtz, the author of PvP discussing the swinging pendulum between handing over nearly all control to a syndicate or marketing partner to a completely DIY model, and then hopefully back to some happy medium.

I think that's definitely what's happening in the music space -- but the nice thing is that it's not just a pendulum, but a spectrum, so that different artists can pick and choose what makes the most sense for them. Sometimes you come across artists who really want to be involved in the marketing and connecting and the selling. And sometimes, they don't. But the point is now they have the choice. And, even beyond that choice, within each aspect of the spectrum, there are many more options in terms of who to partner with and how to structure the deal. In the old system, you had a very small number of record labels or comic syndicates -- and, as such, they held all the power and could structure deals that were bordering on indentured servitude. But, with so many more options these days, the creators are actually taking back control. There's competition in the marketplace, and even if a creator wants nothing to do with the business and marketing side at all, it doesn't mean they have to sign a life sentence over to a business manager. And that's a very good thing for content creators.

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Explaining Why 'If We Charge, People Will Pay' Thinking Is Misguided

from the go-King-go dept

Rose M. Welch points us to a wonderful writeup by King Kaufman at Salon (whose sports column I miss -- but the value of his work about the future of journalism more than makes up for it), concerning the news that Time Magazine used a stock photo it bought from iStockPhoto for a recent cover story. The photographer whose photograph was used was thrilled (as were some of the other photographers). However, there was also a group of photographers who went on to berate him (the photographer) for getting screwed over by a "multi-billion dollar company." Except, of course, they've missed the point. The photograph had already been taken (it didn't take any more work by the photographer to do this) and he was perfectly happy to get money he wouldn't have received otherwise -- even if it was a small amount. From there, Kaufman goes into beautiful beat down mode, and explains how the complaining photographers are flat-out wrong... while also comparing the situation to journalists who say the answer is to just put up a paywall and magically people will pay. It's so good, that I'm quoting a large portion of it, but go read the whole thing as well (and then follow that blog):

Saying that if photographers all refused to do stock photography they'd all get paid more is like saying that if restaurants all refused to give customers napkins without charging they'd all make a bundle on napkin sales. It's like saying that if local bands refused to play for drinks at dive bars, they'd all make good money playing music.

It's also like saying that if news organizations stopped giving away content on the Web, people would pay for news content online. It's absurd.

The posters in that forum who are making that argument are failing, or refusing, to understand basic economics, if not human nature. All photographers are not going to refuse to do stock photography. The ones who do refuse will simply be opening up the market for those willing to sell their pictures cheaply, either because they're not in it for the money or because they can make a profit on volume.

And those arguing that Time should have paid more for this stock photo because it sometimes pays more for other photos, or because it has a lot of money, are forgetting a little thing called supply and demand.

We should note, though, that because Time prints so many copies, it is likely it had to pay iStockphoto for an unlimited-run license, and that its cost was more like $125 than $30. Still nowhere near thousands, and we should also note that Lam, the photographer, was thrilled with his Time cover at a price of $30, and plenty of his colleagues were thrilled for him.

The same pricing dynamic is in play in journalism. The price is not set by how much time, effort, talent or experience went into making the product, and it's not set by how much money the customer has. It's set by supply and demand. The supply of stock photography is very large. The supply of general news content is huge.

If Time hadn't found Lam's stock photo of coins in a jar for $30, or $125, it would have found a similar photo for a similar price. If news consumers can't get their news online for free from their favorite news organization, they'll find it for free somewhere else.

What happened with Lam's photo is not a failure of the system, not a case of photographers eating their own and not a matter of big, rich Time magazine taking advantage of the little guy. I doubt those photographers would expect Time, because it has such a big budget, to pay $3 for a postage stamp or $20 a pound for the office coffee.

What happened with Lam's photo is simply the way the industry works. Time paid what it paid for that image because that's about what it was worth.

When the barrier to entry is low, the supply of goods is large and the alternatives available to the buyer many, the price is going to be low. Wishing it were otherwise, as the photographers are doing in that online forum and as opponents of free content do in Future of Journalism nerdland, will not make it otherwise.

Indeed. What Kaufman describes is the same sort of economic illiteracy that we run into in conversations all the time. People feel that because they don't like the way things work, they need to either blame those who are happy with the way things work or to blame those of us who are simply explaining the economics of supply and demand to them. It's a blame the messenger sort of thing. If I could create a world where photographers and journalists could magically make tons of money, I would. That would be great. But, that's not the world we live in, and pretending it is (or pretending you can simply start charging high amounts and people will keep paying) doesn't help matters. Instead, figuring out ways to understand the economics at play, and then looking for ways to take advantage of those basic economics, seems to make the most sense. This is not about what "should" happen or what people would "like" to happen. It's about what is happening, and learning to take advantage of it.

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Has Google Reached The Perception Tipping Point?

from the an-important-question dept

Last week, Anil Dash wrote up a thoughtful post wondering if Google had hit its "Microsoft Moment," which I'll loosely paraphrase as the moment when more people were afraid (or, at least, were marginally distrustful) of the company than that loved the company. For many years, part of Google's success has been based on its ability to "not be evil." That mantra -- often misinterpreted -- tried to get the company to focus on putting the user first, which, in turn, led many people to trust Google and its quirkiness. And yet, the company has grown bigger and bigger and bigger. And the fear over what that means has only grown -- some of it reasonably, some of it certainly driven by competitors and critics. While I believe that the folks at Google really do still think of themselves as being totally customer focused and still try to present themselves as that quirky Google, they're reaching a point where they need to do a lot more to support that perception outside the company. Because it's really not getting through in many cases.

We've noticed this a bit ourselves, with some of the moves the company has made in the last few years showing a distinct change in tone. Whereas there was a point that Google seemed to be defending legal battles on principle, when the company capitulated with the record labels about YouTube, with the Associated Press and, most recently, in its (still in court) book settlement, a different story emerged. In all of those cases, the deals made Google stronger -- while making competitors weaker by not standing up for some key principles. Google started to use its massive cash coffers not to defend key principles, but to dump the problem off on smaller players. Of course, I believe this has already started to come back to haunt the company. The fact that publishers knew they could get a book settlement out of Google was because it had given in on the YouTube and AP deals without standing up for fair use.

Either way, it became quite clear that Google was no longer Silicon Valley's defender. It was Google's defender. And, of course, some will argue that's exactly as it should be. Google has no responsibility to stand up for the principles of others. At the same time, many will claim that Google would be silly not to use its money to harm competitors. But these all showed a particularly un-Google-like view of the world. It was that "don't be evil" stand that made people trust them. It was that belief (real or perceived) that Google was entirely focused on making the world better for everyone that built up that trust. These moves (and some of the moves Anil discusses in his piece) may make the shareholders happy in the short-term. But they end up harming reputation in the long-term.

As Google is fighting accusations of antitrust, the message it keeps trying to spread is that competition is only a click away. The company would be wise to remember that itself, because sometimes it doesn't actually act that way.

That said, I don't believe the company is acting "evil" or that it should be accused of any sort of antitrust violations. But the company has certainly acted a lot less "Googley" lately, and Anil is correct in saying that it appears a lot of folks internal to the company don't really recognize that (or want to believe it). It's definitely hard to keep that kind of culture and attitude as a company gets bigger (and, as some of its earlier employees sail off). And, to its credit, Google has certainly been able to keep a "good" reputation for a lot longer than other companies (and longer than many suspected Google could keep it). But that message has been drifting, and Google would do well to recognize how the external world is perceiving it.

Longtime Googler Matt Cutts responded to Anil's analysis in what I'd consider to be an open letter to other Googlers to take Anil's words seriously, rather than angrily (or just dismissing it as idle criticism). Hopefully that message gets through.

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Film Studios Can 'Cannibalize' Their DVD Sales, Or Lose Them Completely

from the time-warp dept

"Like music before it, and lately the book industry, major film studios are grappling with the transition from distribution of physical DVDs to electronic delivery. It is a change the studios need to make, to cut costs and curtail piracy." You'd be forgiven for thinking that line was from a story about the film business from several years ago, but it's from a piece over the weekend in the WSJ laying out that movie studios still haven't figured out this internet thing. Of course, with guys like Michael Lynton in charge, that doesn't seem too surprising. Anyway, the main point of the WSJ piece is that studios have been slow to move because they're afraid of killing off DVD sales, which still account for 43 percent of film revenues. Here's the rub, though: DVD sales are already slipping, and efforts to boost them by pushing new kinds of plastic discs on consumers aren't helping. The studios seem to believe that their content is valuable enough that they can dictate how people purchase and enjoy it, and that they'll keep on buying, regardless of how their preferences and desires change. This attitude has already shown up in the studios thinking of yanking their movies from Netflix and trying to hamper the Redbox rental service. Clearly, the idea that studios can protect DVD sales by hamstringing downloads and online services isn't working. Using the fear of cannibalizing DVD revenues with online services isn't particularly smart. Studios face the choice of perhaps cannibalizing their own sales, or losing the revenues to somebody else completely.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Bad Business Advice: Always Look To Charge For Content

from the if-you-want-to-fail... dept

A few people have sent in the NY Times story supposedly about the "free vs. paid" debate that quotes some business school professors giving what appears to me to be awful advice:

Eric J. Johnson, a professor at Columbia Business School, said he had been amazed by media companies repeatedly adding free online services, like on-demand video. "Before you add something to your site, you should say that if consumers really want it, that should be part of a package that you could charge for."

That's looking only at one side of the equation and is doing so in a dangerously short-sighted way. Rather than saying "hey, if people want this, we should charge for it," why not actually look at the larger ecosystem? Why not recognize the added value that can be added if it is free and how that can enable other business models? The problem is that professors like Johnson are basically pushing the idea that a media company is a "content company," rather than a company that's building a community. It focuses on the belief that the content is the final product. It's not. It's never been the final product. If you have open and available content, that allows users to make it more valuable by sharing it, spreading it, annotating it, commenting on it and building off of it. You can't do that when you put it behind a paywall. Content behind a paywall is less valuable to most people. So why would people pay for content that is less valuable?

The problem is focusing so much on the product rather than on the real benefit. Having the content free enables so much else. And if you focus on charging, all it does is open up an opportunity for others to step in and provide that value, and sap away the "paying" users. Focusing just on the pay question and ignoring the value side of the equation is a recipe for trouble.

So, rather than the NY Times "debate," perhaps check out what the site Hypebot did, which was note that the "debate" is already over. It's not about whether or not there should be "free" content, but that the economics and the market are clear: it will be free. So, with that in mind, it put together a whole series of thoughts from different folks about ways to embrace "free" as a part of larger business models. There's plenty of good stuff to read there.

Glenn Peoples, at Billboard, also picked up on the discussion, which is great, though I'd like to challenge one thing he wrote, complaining about Chris Anderson's take on "free":

Anderson did not draw enough distinction between marginal cost -- which in the case of digital distribution is zero -- and average cost. When Anderson writes that "the marginal cost of digital information comes closer to nothing," what he means is the marginal cost of distributing that digital information. There are significant costs in recording music. The cost of creating a brand and inducing awareness, other considerations Anderson understates, are both unavoidable and considerable. An insignificant cost of creating and distributing one more digital file does not reflect the amount of investment to be recouped.

While I don't want to speak for Chris, he and I have certainly talked about these things, and I believe that Peoples is misstating Chris' point on all of this. As we've discussed here before, no one is ignoring the cost of creation or the cost of those other things. We're simply stating the economic fact that none of those things matter in terms of final price. This isn't how we want things to be. It's how economics works. Price is influenced by marginal cost. That's it. Price is not influenced by fixed costs (or average costs). That's not because of what Chris says or what I say. It's how a market works, no matter how anyone thinks things should be.

That doesn't mean you ignore the fixed costs or the average costs. Obviously, you do need to pay attention to those for the sake of making sure there's an ROI where you need it. But that's where you look at your overall offering rather than focusing so narrowly on just the content. So if you can take the content (as you can) and make it free, and use that to drive up interest and value in other scarce products you can sell, then that's where it matters. And, as for the question of "the costs in recording music," we (here at Techdirt) have certainly addressed that at great length: the creation of content is in fact a scarce good. And you can charge for it -- and many have. Jill Sobule is a perfect example of this, getting people to pay to create a new album. Other models work as well, including having brands help pay for the creation of music. There are lots of models that work -- and they don't conflict with or negate the fact (not opinion) that the content itself will have its price driven towards free.

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NBC Universal Shuts Down Battlestar Galactica Fan Charity Event In Toronto

from the not-very-nice dept

And here we have yet another case where the copyright holder is certainly within its rights, but that hardly means that its decision made any business sense at all. Michael_S alerts us to the news that some fans of the TV show Battlestar Galactica tried to set up a showing of the finale in a movie theater in Toronto as a charity event. They spoke to someone at NBC Universal, who basically agreed to look the other way and let the event happen... but then the lawyers found out and they shut the event down, because how dare the biggest fans of one of your biggest shows all get together to celebrate the show and raise money for charity at the same time. Yes, it is absolutely within NBC Universal's legal right to block such a public performance, but it makes the company look like a massive, charity-hating bully, for no good reason (and, before someone says it, the need to enforce applies to trademarks, not copyright). It wouldn't have been hard for NBC Universal to set up a simple license to allow the showing to happen, but when you live in a world where lawyers and control are more important than actual business sense, this is what you get.

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Why Government Backed Businesses Will Always Be Inefficient

from the limitations-on-actions dept

As it appears that the US government will be putting even more money into AIG beyond the $150 billion we've (us, taxpayers) have already spent, Fred Wilson has a good point about why government funded businesses will almost always act inefficiently. The very fact that every move they make is extra-scrutinized for how they're "spending our dollars" makes it almost impossible to act in ways that can help a company actually make the investments and decisions it needs to make. Instead, everything is second-guessed and scrutinized for "how will this look." This results in business decisions that are forced to respond to populist sentiment rather than good business judgment. This again raises questions of why we're propping up businesses that failed, rather than helping new entities open up.

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How Does Chinese Internet Censorship Affect Business?

from the unintended-consequences? dept

China's sophisticated Internet surveillance and censorship often make headlines in the West. Usually, those stories chronicle the latest crackdown on dissident netizens or highlight a Western journalist's inability to reach the websites of human rights organizations. But recently, more of those articles are focusing on the business aspects of the censorship.

For example, some people are pushing for the US government to make Internet censorship a trade issue. The argument, that Google has made in Congressional testimony, is that digital barriers to the free flow of information are equivalent to traditional trade barriers which are illegal under WTO rules; as such, the US Trade Representative should use its leverage to lower those costs to doing business in China and elsewhere. It is not clear if this will be effective, especially given numerous other bilateral trade issues between China and the United States, but recent news makes it clear that censorship does affect technology companies in China.

Late last week, the head of the Internet surveillance department at the Beijing Bureau of Public Safety was arrested on charges of corruption. The man is accused of taking bribes of nearly $6 million to help an anti-virus company beat its competitor. This is obviously problematic for foreign companies operating in a country where they do not have close ties to the powerful bureaucracy, especially given China's notoriously corrupt judiciary. But perhaps what is even more worrying is that Internet censorship and surveillance are on the rise around the world, only furthering the control exerted upon what could be a very free marketplace.

Kevin Donovan is an expert at the Insight Community. To get insight and analysis from Kevin Donovan and other experts on challenges your company faces, click here.

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China Shuts Down 'Unregistered' Websites

from the the-great-firewall-needs-to-be-fed dept

You may recall a few years back that China started demanding that all websites register with the government for approval. We hadn't heard much about the program since then, but apparently the government has recently decided to shut down thousands of "unregistered" websites, mostly of small businesses. Considering the state of the economy these days (yes, in China as well), you would think that China would think twice before shutting down small business websites... but apparently the ability to control the internet trumps all economic concerns.

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Maximizing Profits Doesn't Mean Screwing Your Customers

from the rinse,-lather,-repeat dept

A few years back, we wrote a post debunking the ridiculous notion spread by some that Craigslist was somehow "anti-capitalist" or not "maximizing profits" because it actually offered most of its services for free. As we noted, much of Craigslist's long-term success was because of these decisions -- which in all likelihood did increase overall profits for the company in the long run by building up further trust in the company. It may not have maximized profits for this quarter, but it most likely was doing a pretty good job in generating profits for the long haul by keeping customers happy, rather than trying to squeeze them for every immediate dime (and who was just saying that Silicon Valley doesn't have a long term view?)

Now we've got another similar story, as the LA Times is positively amazed that the popular virtual world Habbo Hotel limits its users to spending no more than $35/month, on the theory that many of its users are teenagers, who could get sucked into spending on stuff, which could lead to eventual backlash. Its CEO made this clear in a recent interview, saying: "We didn't want a situation where teens were raiding their parents' credit cards to be able to play.... We really don't want teenagers to spend more than the price of two movie tickets a month on Habbo."

So, how does the LA Times describe this decision? It points out, partly in jest, that "turning down money seems un-American." Again, even if this wasn't meant as a serious comment, it's similar to the silly claims about Craigslist. Habbo Hotel has simply made a strategic long-term decision on ways to best maximize its success for the long haul. And, part of that probably included the calculation that Habbo would have been in quite some trouble if news stories started showing up about kids bankrupting themselves buying virtual trinkets for their Habbo Hotel world. Limiting how much people can spend isn't anti-American or anti-capitalist or even anti-profit maximization. It's just taking a much longer term view of the best way to maximize profits over the long run.

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