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

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

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

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

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

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

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


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

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


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Ethan Bauley, Jan 25th, 2007 @ 1:08pm

    Step One...the only step?

    Nice one, Mike.

    I think this step is really the only one that anyone in these industries needs to take.

    There are any number of ways for a record label to redefine its market that will give birth to a viable long term strategy in the digital environment:

    - connect musicians to their audience
    - connect an audience to musicians
    - pr for musicians
    - marketing for musicians
    - administration for musicians
    - gatekeeper/tastemaker

    The list goes on and on. Seriously, it's not as hard as you think. I wonder if any of the big companies have the balls to do anything about this.

    Um, does anyone want to put me in charge of the EMI private equity takeover?

    ;-)

     

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    mmrtnt (profile), Jan 25th, 2007 @ 1:09pm

    Imagine...

    When I read one of these articles of yours, I can't help but get this feeling of vertigo - for the stunning loss that the RIAA has handed the record labels!

    Could you imagine if they had jumped onto the internet with both feet and put up download sites and peppered them with ads and sold tickets, posters, t-shirts, mugs, doggie sweaters, all on the back of their pre-eminent position as the supreme arbiter of popular musical culture???

    They so blew it. And they don't even realize.

    They could have rolled out expanded offerings, teasing people with subscriptions to sites which would allow them to chat live with artists, download different mixes of songs, outtakes from studio sessions, backstage recordings. The opportunities lost are astounding!

    MjM

     

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    chris (profile), Jan 25th, 2007 @ 1:15pm

    the trouble with abundance

    is that it's not very simple for suit and tie types to understand. scarcity is simple:

    i buy/make thing... you buy/rent thing. thing cost me $1, thing cost you $5. i make $4.

    all of this "give away X to increase sales of Y" involves a lot of scary words, like "loss leadership" and "free promotion".

    perhaps if we used terms that don't create scary images of "free" stuff, competition, and small profits then the weasels that are proping up a dying industry won't be so apt to fight it.

    i would imagine it's tough for most business weasels to grasp the concept of "so much free stuff available that people will pay you to find it for them" because they still think in terms of factories and shipping costs.

     

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    Aaron, Jan 25th, 2007 @ 1:41pm

    Reminds me of another story

    I wish I could remember where I heard it, but somebody once noted that if the electric light bulb were invented in today's political/industrial climate, the kerosene lamp industry would have them regulated to death if not outright banned.

    Somewhere along the way, innovation stopped being about how to better serve the market, and became about how to best protect your existing solution. It's all backwards.

     

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    Ethan Bauley, Jan 25th, 2007 @ 1:53pm

    Re: Step One...the only step?

    This point has already been well defended, but getting paid from selling recordings has nothing to do with whether musicians will make music or not.

    An obvious example would be every musician who ever wrote music before 1900.

    Gillian Welch wrote one of my fav songs on the subject. She was coming from a very 1999 perspective on this, but it has even more resonance when you think about the future. Here's some of the refrain from "Everything is Free," from her album Time (the Revelator):

    "Everything is free now,
    That's what they say.
    Everything I ever done,
    Gotta give it away.
    Someone hit the big score.
    They figured it out,
    That we're gonna do it anyway,
    Even if doesn't pay."

    I have both an MFA in music and some Wall Street experience, and I'm telling ya'll:

    Think about it!

     

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    Jesse Calderon, Jan 25th, 2007 @ 3:13pm

    should be required reading

    This should be required reading for everyone, not just the folks at the RIAA and the MPAA. It is really unfortunate that a concept that should be so easy to understand and implement isn't more widely accepted.

    I work in the software industry and big software companies have the same lack of understanding of their business that the RIAA and MPAA do.

     

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    Michael Long, Jan 25th, 2007 @ 3:17pm

    Re: Re: Step One...the only step?

    "...getting paid from selling recordings has nothing to do with whether musicians will make music or not."

    Perhaps, but it may have a bearing on whether or not they can afford to continue making music, as it is a revenue stream.

    But before you give the standard rebuttal about the industry and payments, consider that about a quarter of the current music out the comes from indepentent musicians and labels, who DO get a significant percentage of the income from sales. And that percentage will increase as more and more people realize that they don't need the services that traditional labels provide.

    Now, your point may be more related to the idea that the "true" musician will create music anyway, and that may well be true. Buf if they're good enough to listen too, then I think most people would prefer they spend their time actually making music, and not wasting it as a greeter at WalMart just in order to make ends meet.

    And since Mike loves to reiterate his point, let me reiterate mine, in that from my perspective we already have a system whereby hundreds of thousands of musicians create music for us on spec, and we, if we like it, pay but a fraction of the costs. No assurance contracts, no buying t-shirts we don't need to "support" a band, just paying for value received.

     

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    Matt, Jan 25th, 2007 @ 3:19pm

    Hit it right on the head

    I think you hit it right on the head. The music/movie industry sees a lost sale and says:

    "Where did that sale go? It must have gone to one of two places. Either that customer no longer desires our product or the customer has stolen our product. We see no evidence that the customer no longer desires to be entertained by our product therefore they must have stolen it."

    However, the customer sees it completely differently. I look at the situation and say:

    "I have limited time and money to supply my entertainment needs. I could surf the web. I can play video games. I can read a book. I can download a podcast. I can watch TV. And so on..."

    I then make a judgment based on a variety of factors such as how much a given option entertains me, how convenient it is to my time, and how much it costs.

    These days music loses out to podcasts in this equation. They're cheaper and more convenient, although entertainment value varies (but then again, so does that of music). Movies still get some of my spending dollar, but not as much as they used to. Their primary competitors now are my Tivo and Xbox 360.

    In order to win my entertainment dollar music and movies need to become sufficiently cheaper, more convenient, more entertaining, or some combination of the three. As of right now, the RIAA and MPAA seem to be intent on doing just the opposite. As you said, they fail to realize what industry they're in and just who they are competing against.

     

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    Matt, Jan 25th, 2007 @ 3:24pm

    Re: Imagine...

    What I find even more shocking is how the MPAA is following right in their footsteps. Hind sight is 20/20, and it's not difficult to see nearly every error that the RIAA made along the way. Yet even with this supreme example of exactly how not to do things, the MPAA seems determined to repeat every single one of the RIAA's mistakes.

     

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    AMP, Jan 25th, 2007 @ 3:50pm

    Re: Hit it right on the head

    "I have limited time and money to supply my entertainment needs. I could surf the web. I can play video games. I can read a book. I can download a podcast. I can watch TV. And so on..."

    I think this is a great point. Everybody has a finite amount of entertainment $ to spend. That becomes more so the older you get, start a family, take on more expenses etc. At the same time, the number of entertainment options are increasing (moving away from scarcity). All entertainment industries face this. Las Vegas has gone through great pains to try and transform themselves into a family oriented town to try and lure more of that the entertainment $$. It's no longer just degenerate sports gamblers. Professional sports has realized the same thing. While they are certainly not lowering their ticket prices, they are doing things to make the experience more enjoyable. I.E. sponsoring group days, building more entertaining venues (Arizona's baseball stadium has a pool in the outfield) You can get food and beverage service at your seat in most NBA arenas etc etc.These places have not necessarily lowered their prices, but they have given more value for the dollars that you are spending. Big content needs to recognize this and follow these examples. As always, this is just MHO and I could be wrong.

     

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    Roy, Jan 25th, 2007 @ 4:07pm

    Scarcity is not the issue

    This whole series is flawed because it's basis is the same old argument about somehow everything changes because bits that make up digital media are not scarce.

    It's not about scarcity, it's about change. Change favors the startups and hurts the incumbants. The incumbants don't want to give up without a fight, but change, like time, waits for no one.

     

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    Anonymous Coward, Jan 25th, 2007 @ 4:19pm

    Re: Scarcity is not the issue

    "it's about change" Yes, change brough on by lack of scarcity

     

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    SFGary, Jan 25th, 2007 @ 4:28pm

    Nice post, but...

    Even if the RIAA and the recording industry were made obsolete by new distribution models that devalue their service or usefulness, I am pretty sure that the bulk of the musicians would still want to be paid for the music they create and sell. I don't buy the notion of having to give away the music as a loss leader to sell concert tickets, t-shirts and other crap.

    I do agree that the customer is being harassed and treated as criminals by the RIAA and the Recording industry but that has been precipitated by pirate music peer sites and the freeloaders.

     

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    William, Jan 25th, 2007 @ 4:39pm

    So what

    The music industry in not in business to entertain people. They are in business to make money they just compete for peoples entertainment dollars. And as long as they can make more money selling their content that is what they will do.

    And while I think they could make more money with a more customer focused online presence. By doing things like selling there content online without DRM. They still own the rights and can do with their content what they wish. And wishing that copyright laws will go away is not going too make any difference.

    Over the years copyrights have been extended time and again by congress. And while i think having no new material enter the public domain is bad. I am not so dense as to think that copyright will ever go away or that content providers will suddenly start giving away their material.

    I've said it before, get used to paying 99 cents per song because that is going to be the only legal way to get most music online for a long time to come.

     

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    Mike (profile), Jan 25th, 2007 @ 4:42pm

    Re: Nice post, but...

    I am pretty sure that the bulk of the musicians would still want to be paid for the music they create and sell.

    But if a bunch of other musicians are making MORE money by giving away their music, they'll rethink that pretty damn quickly.

     

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    Mike (profile), Jan 25th, 2007 @ 4:48pm

    Re: So what

    The music industry in not in business to entertain people. They are in business to make money they just compete for peoples entertainment dollars. And as long as they can make more money selling their content that is what they will do.

    I guess my post wasn't particularly clear on this, but the point was that the path you describe is the same as the horse-drawn carriage. You follow your old business model down as *someone else* figures out the new market.

    I didn't ever say that they weren't in business to make money. The point was they could *make a lot more money* if they recognized that they were in the entertainment business, not the selling music business.

    They still own the rights and can do with their content what they wish. And wishing that copyright laws will go away is not going too make any difference.

    Again, I regret that I wasn't clearer. I'm not wishing copyright laws would go away. I'm hoping that the RIAA and others recognize that copyright laws don't even matter. Let them stay. But they can make a lot more money by *purposely* ignoring them.

    I am not so dense as to think that copyright will ever go away or that content providers will suddenly start giving away their material.

    Again, this has nothing to do with copyright, but plenty of copyright providers ARE giving away their material and they're *making more money* because of it. Others will discover that soon, and then those who rely ONLY on selling their material will be in trouble.

    I've said it before, get used to paying 99 cents per song because that is going to be the only legal way to get most music online for a long time to come.

    Except that it's not. Plenty of bands give away their music for free on purpose, recognizing that it helps them. So, you're already wrong, and more and more alternatives will show up over time.

    And, no, I won't get used to paying 99 cents for songs. I never have paid 99 cents for a song. I've also never downloaded an unauthorized song. I have bought CDs. I have downloaded authorized songs. But, the thing about the market is that each of us get to decide what we're willing to pay for, and we don't have to "get used to" anything if we don't want it.

     

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    William, Jan 25th, 2007 @ 5:01pm

    Re: Re: So what

    You seem to be laboring under the misconception that the records labels are going to go belly up some time in the near future because they cant get with the time. But they are making record profits every year.

    I've said it before, get used to paying 99 cents per song because that is going to be the only legal way to get most music online for a long time to come.

    I said MOST music you know the good bands who have signed with major labels. Not some suckey indy band that is just trying to get promotion so the can get signed and make some real money selling music.

     

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    SFGary, Jan 25th, 2007 @ 5:16pm

    Re: Re: Nice post, but...

    You might be right. However its for them to figure it out and not have it forced on them by piracy.

     

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    Mike (profile), Jan 25th, 2007 @ 5:26pm

    Re: Re: Re: Nice post, but...

    You might be right. However its for them to figure it out and not have it forced on them by piracy.

    Yeah, and the horse-drawn carriage makers should have figured it out to, not had it forced on them by automobiles -- but that's not the way markets work.

    Something is *always* forced on the incumbent provider. That's called competition.

    You say "piracy" which is a loaded word. What you mean is an alternate distribution mechanism. "Piracy" only makes sense if you don't know what business the recording industry is in.

     

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    Mike (profile), Jan 25th, 2007 @ 5:29pm

    Re: Re: Re: So what

    You seem to be laboring under the misconception that the records labels are going to go belly up some time in the near future because they cant get with the time. But they are making record profits every year.

    That's why they're so happy huh? Oh wait, they're not. They're whining and complaining about all this "lost" and "stolen" business.

    I never said that they were going to go out of business soon (please don't put words in my mouth). But, the longer they wait, the less likely they'll be able to make the adjustments necessary. It may already be too late for most of them.

     

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    Mike (profile), Jan 25th, 2007 @ 6:21pm

    Re: Re: Re: So what

    You seem to be laboring under the misconception that the records labels are going to go belly up some time in the near future because they cant get with the time. But they are making record profits every year.

    More on this:

    http://lefsetz.com/wordpress/index.php/archives/2007/01/25/668/

    That's not the story of a record labels making record profits and being thrilled about their prospects. That's record labels beset by layoffs and merging with whoever they can just to pretend they can stay in business.

     

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    Bill, Jan 25th, 2007 @ 9:08pm

    Re: Re: Re: Re: So what

    I read your comment and the lefsetz letter and I think you're deluding yourselves thinking that more money can be made in a copyright free environment. That somehow by some yet to be revealed business model they will begin a new growth phase.

    The record labels do not sell an obsolete product. Their product is big name musicians and their music. This is A+ content and if you can limit the supply you can maximize the revenue. I've forgotten my economics but isn't profit maximization where the demand line and the production cost meet or something? By the RIAA's enforcing tactics they are able to shift the curve to their favor. If there is no copyright enforcement people get the music they want for substantially lower cost (practically nothing) and the total pool of money going from consumers into the music industry has to drop.

    One example that I think is relevant here is Microsoft's Windows. I think Microsoft has benefited from piracy by Windows being broadly distributed through piracy to countries such as China. But to make money on Windows Microsoft has to introduce a fear factor that starts with people and companies that hold themselves to a higher standard of ethics and then as Windows becomes more entrenched they start ramping up the fear factor.

    I see the RIAA as a similar entity. I think they somewhat benefit by piracy where that popularizes a certain musician but then they have to use their enforcement fear factor to keep the general public feeling like it's less costly to buy their music than it is to pirate it.

    If you have an example of a business model of a record company that is making big money without relying on copyright, I'd like to see it.

     

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    Mike (profile), Jan 25th, 2007 @ 10:35pm

    Re: Re: Re: Re: Re: So what

    I read your comment and the lefsetz letter and I think you're deluding yourselves thinking that more money can be made in a copyright free environment. That somehow by some yet to be revealed business model they will begin a new growth phase.

    Yes, I'm sure the horse-drawn carriage makers said the same thing about automobiles. Hell, they were expensive to make, and who would ever buy one of those? Instead, they were making good money selling horse-drawn carriages, and its not like the market would ever change....

    How did that work out?

    And, how much more money did the auto companies make in the long term than the horse-drawn carriages?

    Which industry would you rather be in?

     

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  24.  
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    Mark, Jan 26th, 2007 @ 3:13am

    Alternatively

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

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

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

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

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

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

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

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

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

     

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    Enrico Suarve, Jan 26th, 2007 @ 3:17am

    Just let sleeping dogs die

    Mike - I think you're wasting your time, they aren't going to listen, stop trying to save broken companies and just let them die peacefully?

    Fact is I have always copied music:
    *I copied music from the radio to tape - if I got into a song I went out and bought it
    *I used to buy records - I copied these to tape to play in my boom box
    *Records died and I bought tapes - I copied these to tape and created mix tapes, I copied favourite tapes to another tape to avoid chewing
    *CDs arrived and commercial tapes died - in the beginning I copied these to tape to play in the car and on non CD stereos, later I copied them to mix CDs again and then to my PC
    *MP3s arrived and I treated these like radio in the old days - I would download them and buy the album if I liked it

    Now they changed it and pursue individuals for ridiculous infringments. I pay for downloaded content that won't work on more than one device, I buy overpriced CDs which I can't transfer easily to my other devices to play, and all the time I am treated like a criminal

    I don't see any added benefits:
    *I don't see online concerts taking off under industry sponsership
    *I don't see true time-served bands coming off the pub circuit and into my living room
    *I don't see innovative services such as drop an mp3 on your player for a minimal cost in our kiosk

    All I see is a bunch of greedy execs who have ignored their customers for over a decade and listened only when it suited them or people were coincidentally singing their tune. They have created their own market which is now made up of manufactured shite being sold in unusable formats at an inflated price

    They killed a market I used to love

    For gods sake let them die

     

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  26.  
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    Mark, Jan 26th, 2007 @ 5:20am

    RIAA/MPAA Economics Lesson

    Bravo! What a good post and excellent analogy. You've nailed it, and I think in the next 5 years we will see people downloading a movie, to watch in their home for 99 cents. No more $12 tickets, parking hassles, waiting in line, rude people in the theater, $5 cup of soda, and the inability to be entertained at your leisure, vice the theater's "schedule". The business model that most companies are in does not allow for expansion when disruptive technologies come along, but that is where the opportunity for entrepeneurs lay. The RIAA is also in for S**tstorm in the next 5 years as the entirety of entertainers realize technology exists now (web) to move all that entertainment direct to the end user without the labels taking so much off the top. As the recording artists realize the labels are not serving their interests, and alienating their market they will dump them, and I'll be interviewing a bunch of failed record company marketers who never realized what market they were really in. Again - nice post...

     

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    Bill, Jan 26th, 2007 @ 5:34am

    Re: Re: Re: Re: Re: Re: So what

    Yes, I'm sure the horse-drawn carriage makers said the same thing about automobiles.

    We all see the analogy with carriage makers and button makers and it's a big "Well duh!". The record companies and movie companies see that too and they're all looking for the Business Model that will assure their survival.

    The thing they have going for them is copyright. Copyright is not going away no matter how much you wish it were so. There are profits to be made with the force of copyright behind you.

    Again, if you have an example of a business model of a record company that is making big money without relying on copyright, I'd like to see it - the record companies would like to see it and the music consumers would like to see it. Hell, I'd love to be able to download any music I wanted for free without breaking a law. I'd never spend another dime on music! But I do have a small ethical standard that I like to think I'm maintaining.

    But really, copyright and its enforcement is just not going away.

     

    reply to this | link to this | view in thread ]

  28.  
    identicon
    Vincent Clement, Jan 26th, 2007 @ 5:49am

    Re: Scarcity is not the issue

    Scarcity is the issue. All things being equal, the lack of scarcity should mean that companies must change or face extinction. When things are scarce, there is no motivation to change anything.

    Look at bottled water. Just about every household in North America has running water, much of it treated. With all that water, who in their right mind would think there would be demand for bottled water? Yet, the bottled water industry makes billions of dollars. The bottle water industry figured out how to make lots of money on a good that is readily available to most households.

     

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  29.  
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    Bill/Vincent, Jan 26th, 2007 @ 6:41am

    Re: Re: Scarcity is not the issue

    Look at record companies. Just about every household in North America has access to free music, much of it C- content. With all that music, who in their right mind would think there would be demand for purchased music? Yet, the bottled water industry record companies makes billions of dollars. The music industry figured out how to make lots of money on a good that is readily available to most households - by enforcing copyrights.

     

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  30.  
    identicon
    Matt, Jan 26th, 2007 @ 7:16am

    Re: Re: Re: Scarcity is not the issue

    You guys are assuming that the good itself has to be scarce. However, there is always more than one type of scarcity involved in production of a good. Talented musicians and water could very well be the scarce resource. However, it could just as well be something else, like shipping or labor, that is the scarce resource that raises the perceived value of the product.

    Bottled water is successful because the industry has convinced customers that their product is superior to what comes out of the tap. It's irrelevant to the market if this claim is true or not. It only matters that it affects how the customer perceives the value of the product. Furthermore, there is an added convenience to having the water in a bottle, which brings a value to the product. Water isn't the scarce resource that determines bottled water's value, it's its purity (or perceived purity at least) and convenience.

    Conversely, music produced by the RIAA has carried a high perceived value for many years when compared to that produced by indie labels. The recordings were perceived to be better produced by the customers. Again, whether or not they actually were is irrelevant. However, with the advent of the CD-R customers suddenly had a new piece of information about how much the product was actually worth. When they discovered that the actual price of creating that physical disk was somewhere on the order of $0.25 their perceived value of the RIAA's product plummeted. Since then, the internet and MP3's have made the storage and distribution of music even cheaper.

    It wasn't the music that the consumers considered to be scarce, it was the media that they were recorded on and the distribution of that media. Music has always been abundant, but quality distribution of music was scarce, and that's how the recording companies made their money. Without that scarcity, the RIAA's methods for controlling the market are useless, hence their declining state over the last decade.

     

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  31.  
    identicon
    Ethan Bauley, Jan 26th, 2007 @ 10:52am

    Re: Re: Re: Step One...the only step?

    Michael Long:

    Perhaps, but it may have a bearing on whether or not they can afford to continue making music, as it is a revenue stream.

    It's irrelevant whether recordings are/were/will be a revenue stream for musicians. The greater point of all this lack of scarcity commentary is that margins on retail sales of recorded music are going to be pushed TOWARDS zero.

    eMusic is already selling them for $0.25 per track. In the next 5 years, there will be the killer subscription service that gives you access to all of recorded music for some monthly price. And/or P2P will be licensed and monetized.

    That will create big profits for catalog owners [RIAA] and a great new distribution environment with equal access for every musician [the long tail says: barriers to distribution go to zero].

    You're thesis presupposes that, in the age of bountiful profits from recordings, any talented musician who wanted to make a living from music could make money off records.

    How ridiculous does THAT sound???

    Maybe not ridiculous enough for you, since you apparently believe that indie labels and musicians are making money off records. Indie labels don't make money. I own one. We do it for the passion and the love, eke out a salary, etc. No indie record label is creating any real value [IRR, ROE, etc]

    Here's another hilarious point of yours: Buf if they're good enough to listen too, then I think most people would prefer they spend their time actually making music, and not wasting it as a greeter at WalMart just in order to make ends meet.

    I am nothing if not a cockeyed optimist about music and talent in general, but this is truly some out there utopia. I can't even address this.

    Rest assured, all these problems will be solved. Between the coming avalanche of killer-app subscription/download services and music-based microbranding/segmentation web apps, the music industry will be fine. The profit centers are just moving.

    Honestly, does ANYONE READING THIS think we're about to enter some musical dark age? Of course not! So, what does that leave you with?

     

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  32.  
    icon
    Nick D (profile), Jan 26th, 2007 @ 5:48pm

    I hope this post was in part inspired by my comment here: http://www.techdirt.com/article.php?sid=20070118/183340#c226

     

    reply to this | link to this | view in thread ]

  33.  
    identicon
    23jj, Jan 27th, 2007 @ 5:30pm

    A few carriage makers actually changed over to making car
    bodies.

     

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  34.  
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    Alex, Feb 7th, 2007 @ 8:47am

    not quite agree

    there is a difference between US music market and Russian music market that very clearly illustrates which business each of the industries are in.

    In Russia, artists - and businesses behind them - make money on concerts, appearances, T-shirts, etc. The actual CDs are but promotion materials. So Russian artists have the luxury of being advocates of DRM-free distribution. Artists some times just publish their music on Web.

    In the US concerts are but promotion of CDs. Thus the different approach to DRM. They'd rather give tickets for free than loose CD sales.

    One may argue that the US guys shall adopt the Russian formula. But then lets see how much money is made on both sides.

    When you're earning by touring and playing live, you can't squeeze in more concerts than you physically can. And you can't raise ticket prices infinitely as well. So your income is limited, even if your music is terribly popular.

    But when you're selling CDs, you can sell as many as people want to buy - increasing your earnings by the level of you popularity. This even seems a fairer scheme for artists.

    I think, a better solution for music industry would be not to convert to a kind of Russian model and not to fight copying by DRM, but simply become the people choice of downloading source by simply being better at it.

    If I had a choice to go to iTunes, instantly find a song by text exert or title or artist, pay 1 buck and listen now and then and forever, versus mailing all my friends and searching all over the Internet for a pirated copy of unknown quality, I'd go to iTunes. But I want an MP3, so I don't. And this is why iTunes sells only 3% of music found on a typical iPod - according to Steve Jobs himself.

     

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  35.  
    identicon
    Alex, Feb 7th, 2007 @ 8:59am

    Re: Re: Nice post, but...

    not quite - musicians are about music, not business. And they should not have to be businessmen. So they should really make money by selling music, instead of taking on a T-shirt production factory and an Internet fan site.

     

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  36.  
    identicon
    Amby, Mar 14th, 2007 @ 2:12am

    ridiculous or not

    “You're [sic] thesis presupposes that, in the age of bountiful profits from recordings, any talented musician who wanted to make a living from music could make money off records.

    How ridiculous does THAT sound???

    Maybe not ridiculous enough for you, since you apparently believe that indie labels and musicians are making money off records. Indie labels don't make money. I own one. We do it for the passion and the love, eke out a salary, etc. No indie record label is creating any real value”

    That's not what I have heard.

     

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  37.  
    identicon
    Jenny, Jul 16th, 2007 @ 4:56am

    Realisement is imporment

    Without realisement of your present market, you can never step into a new market successfully. But it is also important to find out the details of the market you want to enter. If you are interested in entering Chinese market, go to visit www.acb2b.com. There you can find the details of Chinese market easily.

     

    reply to this | link to this | view in thread ]

  38.  
    identicon
    Vlad, Aug 28th, 2008 @ 6:04am

    Yes, but..

    I entirely agree with the premise here, but there's a central reason why the record companies do not seek to shift their business model. As it is today, they need the artist's cooperation rarely - to sign the contract, and to record the album. Their main profits still come from selling CDs - inanimate, predictable, and easily reproduced. If they shifted to relying on cash streams generated via endorsements, appearances and concerts, they're shifting their business model to being almost entirely artist-dependent.

    That could prove more profitable (or not), but it's guaranteed to introduce a lot more uncertainty, as well as higher costs associated with pampering artists with greater power.

    Of course, shifting to that business model still beats getting overtaken and becoming extinct, but then there's the arrogance of the decision makers we are talking about, which is sure to lead to their own demise.

     

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  39.  
    identicon
    UtilitySoftwareHopeful, Nov 27th, 2008 @ 10:59am

    Does this work for all businesses?

    Your article is compelling and I agree it works for the Music and Movie Entertainment industry but can you therefore assume that no businesses exists that are made up of completely inifinite goods with no scarce element?

    If I wish to make an extremely simple piece of utility software for making a mobile phone easier to use am I in the mobile enjoyment / utility industry? What are the scarce goods that I can sell on the back of giving my software away for free? Am I unusual in not being willing to use my time and money to develop the software and give it away free?

    Interested in your thoughts both in the specific case mentioned above and the general case.

     

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  40.  
    identicon
    Anonymous Coward, Dec 30th, 2008 @ 11:35am

    The labels will still continue in their two most important functions:

    promotions (the art of getting a creative work in front of a potential consumer)

    venture capital (providing capital for a band's expenses, whether it is promotion or simply buying a bus for their tour)

    But promotions are easy! YouTube!

    It's right, and it's wrong. It's easy to put something on YouTube; it's hard to get people to view it. If anything, the ever-falling price of putting together a record (neglecting labor) means that more people will do it, and they'll want to promote, too. And it's very easy for the cream not to rise to the top if the market keeps churning so turbulently. Nothing will make more hours in the day for me to listen to new music I might want to buy.

    That means someone has to answer the question, "Who is playing on station X right now?"

    The labels have functioned as a very crude VC-and-promotions service for bands for some time. It's basically like a peer-review system for science. The system has slowly evolved from "musical talent" to "people chosen for their ability to dance" over time.

    If we begin rewarding the system for making "access to celebrity," which is scarce, the valuable item, what we select for is celebrity, not necessarily good music.

     

    reply to this | link to this | view in thread ]

  41.  
    identicon
    Pool Tables For Sale, Dec 18th, 2010 @ 7:21pm

    Re: Step One...the only step?

    Great! I think this will strategy will work.

     

    reply to this | link to this | view in thread ]

  42.  
    identicon
    Haine si bijuterii dama, Sep 10th, 2011 @ 5:25pm

    hmm

    Its a big difference between clothes and phones. This market should work. And i totally agree with Anonymous Coward!

     

    reply to this | link to this | view in thread ]

  43.  
    icon
    DanZee (profile), Feb 16th, 2012 @ 11:37am

    Re: not quite agree

    >>When you're earning by touring and playing live, you can't squeeze in more concerts than you physically can. And you can't raise ticket prices infinitely as well. So your income is limited, even if your music is terribly popular.

     

    reply to this | link to this | view in thread ]

  44.  
    icon
    DanZee (profile), Feb 16th, 2012 @ 11:43am

    Re: not quite agree

    When you're earning by touring and playing live, you can't squeeze in more concerts than you physically can. And you can't raise ticket prices infinitely as well. So your income is limited, even if your music is terribly popular.

    I think you have this wrong. As an act gets bigger it moves to bigger venues. Lady GaGa has made $100 million the last two years touring. Her first go-round, she played 3,000-seat concert halls. Her second tour, she played 16,000-seat stadiums. In the last two years, Katy Perry has earned $50 million. Pink in the last few years has earned $40 million. And The Rolling Stones earned $160 million in each of their last 18-month world tours. How much do you think their CDs earned them in the same period?

    These days the CD is the promo items that gets people into the concerts, not the other way.

     

    reply to this | link to this | view in thread ]

  45.  
    icon
    Shine (profile), Feb 21st, 2012 @ 1:37am

    Is this the same concept as "use it, don't knock it"?

     

    reply to this | link to this | view in thread ]

  46.  
    icon
    Peter Desnoyers (profile), May 17th, 2012 @ 10:33pm

    A tangent about carriage makers and lines of business

    "they (the carriage makers) ended up going out of business, because they too narrowly defined their markets as being the horse-drawn carriage market"

    Or because they were no better qualified to make and sell automobiles than any other large random group of people, had to pay a lot of employees while they were figuring out what to do next, and weren't willing to bet their company on something with maybe a 10% chance of success. Meanwhile, auto startups were being formed by a few guys in a garage, and the ones that were good enough to build and sell a few cars got bigger while the other ones failed.

    I've seen markets drop out under several tech companies - for instance, when Microsoft bundles something into Windows and kills the 3rd-party market - and it's not pretty. If there's a way out, it's probably by focusing on what the company *is good at*, rather than some vague marketing idea of what line of business they're in. For instance, AT&T credit cards - at one point they realized that one of the things they were really good at was collecting money from people.

    So the RIAA and MPAA really are in a fight for their lives - any radical change in music or movie creation and distribution will result in a market that they're unlikely to survive in, because they haven't needed and don't have the competencies they'll need to compete in that market.

     

    reply to this | link to this | view in thread ]

  47.  
    identicon
    David Galloway, Aug 14th, 2012 @ 11:51pm

    Not understanding why you have succeeded...

    Is a common theme that is a problem with a lot of business leaders. Not understanding their own business leads to a lot of poor decisions. That particular light bulb helped me finally understand the bizarre business decisions made by company after company. I also realize it's not easy but to properly understanding why your company has succeeded to date and knowing the changing landscape will go a long way to keep a company successful.

     

    reply to this | link to this | view in thread ]

  48.  
    identicon
    Mike Bradley, Apr 5th, 2014 @ 12:14pm

    Re: A tangent about carriage makers and lines of business

    The carriage maker analogy doesn't work. Some went into the car business, Studebaker being the prime example. And while many went out of business, their personnel moved into cars and trucks pretty quickly.

    Likewise, the film and music business is adapting, changing. So is the word industry. Their obstructionism is really just a delaying action that buys them time. More power to them, I say. There are jobs at stake, bills to pay, kids to raise, potholes to fill. Folks in the Rust Belt discovered that abrupt abandonment of industries creates disasters.

     

    reply to this | link to this | view in thread ]


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