Investors Recognizing How ProIP Is Bad For The Entertainment Industry

from the it's-not-a-bad-thing dept

Kevin Stapp writes in to point out an interesting article over at the Motley Fool, where the author, Anders Bylund, points out why the new ProIP law is bad for the big entertainment companies from the perspective of an investor in those companies. Basically, he recognizes what some of us have been saying for years. If you rely on stronger copyright as a crutch to protect an old business model, you're much slower to adopt newer business models that can greatly increase the size of your market. In other words, by denying the growth potential of infinite goods, you shrink the potential size of your market, and that's bad for the company and bad for investors:
As much as I love my Walt Disney investment and the great entertainment the company has created over the years, it's also part of a boneheaded industry that can't deal with the digital revolution.... Disney, Warner Music, and their colleagues could handle rampant piracy in a much more delicate manner and turn today's massive problem into free distribution and dirt cheap marketing. Yes, there are ways to make money when others copy your dearly beloved content for free. The PRO-IP Act is a step in exactly the wrong direction, though.
Exactly. And this reinforces the point that it's a mistake to keep trying to find the right "balance" between content producers and content consumers. There's no need for a balance if the content producers adopt business models that both expand their market (by properly defining the market) and leave consumers free to share and promote the content in a way that actually helps the bottom line of the content producer. It's quite rare to see short-term investor-types recognize such strategies, so it's quite interesting to see a discussion like this on a mainstream site like the Motley Fool. Hopefully others will start recognizing this reality soon as well.


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  1.  
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    LostSailor, Oct 17th, 2008 @ 10:58am

    Balance Isn't A Mistake

    And this reinforces the point that it's a mistake to keep trying to find the right "balance" between content producers and content consumers. There's no need for a balance if the content producers adopt business models that both expand their market (by properly defining the market) and leave consumers free to share and promote the content in a way that actually helps the bottom line of the content producer.

    Of course there's not need to balance rights when one side gives up those rights. But most investors, businesspeople, and content creators are going to need to see some more than just a theoretical promise that the revenue they forgo from the sale of content can be not only made up, but increased by ancillary revenue streams.

    Take the argument you've made for your "infinite goods" example in the music industry. You advocate "freeing" the music to theoretically expand the market for revenue-producing activity ancillary to the music, such as concerts and merchandise.

    One problem with the model is that most musicians are already engaging in those ancillary activities, and I've yet to see a strong business case that shows that there is sufficient leverage in those activities to make up for the non-inconsiderable revenue that would be lost by not selling the music.

    There are only so many concerts you can play and ticket prices are already pretty high for those concerts. There might theoretically be more play in merchandise, but there are only so many t-shirts you're going to sell beyond what you're already selling.

    In this instance, the argument seems to be: give up the revenue from music sales and work harder to make it up elsewhere.

    I'm not saying that the model doesn't work in some instances, though most struggling musicians are already doing all this without seeing dramatic results, or even that it might not be the model of the future. What I am saying is that it's still highly theoretical and in practical application does not necessarily make good business sense.

    However, the alternative--seeking to balance rights of content creators and content consumers in the face of advancing technology by some relaxation of copyright protection--while not perfect advances toward the goals you're advocating.

     

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  2.  
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    Mike (profile), Oct 17th, 2008 @ 3:03pm

    Re: Balance Isn't A Mistake

    Of course there's not need to balance rights when one side gives up those rights. But most investors, businesspeople, and content creators are going to need to see some more than just a theoretical promise that the revenue they forgo from the sale of content can be not only made up, but increased by ancillary revenue streams.

    We're not talking about giving up "rights." We're talking about them not getting monopoly protectionism.

    And it's no "theoretical promise." It's every market that's ever gotten rid of monopoly protections. This isn't new stuff.

    So, no, no one is giving up anything. They're getting a bigger market. It really is that simple.

    One problem with the model is that most musicians are already engaging in those ancillary activities, and I've yet to see a strong business case that shows that there is sufficient leverage in those activities to make up for the non-inconsiderable revenue that would be lost by not selling the music.

    No offense, but if that's true then you haven't looked very hard. We've shown bands of all sizes making a lot more money by utilizing these models.

    The problem is that you seem to only be looking at a tiny part of the model "are they doing ancillary stuff" and leaving out the fact that giving away the infinite good, and actively promoting that INCREASES the demand for the ancillary goods.

    Radiohead did a lot better. NIN did a lot better. And smaller artists have done a lot better. Jill Sobule. Maria Schneider. Jonathan Coulton.

    There are only so many concerts you can play and ticket prices are already pretty high for those concerts. There might theoretically be more play in merchandise, but there are only so many t-shirts you're going to sell beyond what you're already selling.

    You are again, incorrectly limiting the model. Try again. Actually read what we write. Start here. It's only five years old:

    http://www.techdirt.com/articles/20030912/1032238.shtml

    Then read this:

    http://www.techdirt.com/articles/20070503/012939.shtml

    And then maybe you'll recognize how this works.

    In this instance, the argument seems to be: give up the revenue from music sales and work harder to make it up elsewhere.

    No. The argument is properly align the incentives of your marketplace to maximize your revenue potential.

    I'm not saying that the model doesn't work in some instances, though most struggling musicians are already doing all this without seeing dramatic results, or even that it might not be the model of the future. What I am saying is that it's still highly theoretical and in practical application does not necessarily make good business sense.


    Odd. How is a model that has been proven throughout the history of modern economic development "highly theoretical." It's not. It's basic economics and it's been shown to work. Repeatedly.

    However, the alternative--seeking to balance rights of content creators and content consumers in the face of advancing technology by some relaxation of copyright protection--while not perfect advances toward the goals you're advocating.

    No. Actually, it doesn't. Because rather than maximizing the profit potential, it purposely limits it, and sets up an antagonistic structure, rather than one where the incentives are aligned. In other words, the model I'm discussing is win-win. The model you discuss is lose-lose.

     

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  3.  
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    goldenrail, Oct 17th, 2008 @ 4:05pm

    Maybe It's Not Just the Model that's Broken

    Maybe it's also the results. In the "Balance Isn't a Mistake" debate above, there's a lot of discussion about making up revenue lost by releasing some of the rights over artists' music. But does that revenue really need to be made-up? Perhaps the consumers have decided there's no reason record labels and artists need to make millions or billions of dollars. Artists work hard, and society values their contribution, but are they really that much more valuable than the contributions of a dedicated teacher or a skilled construction worker?

     

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  4.  
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    LostSailor, Oct 20th, 2008 @ 10:32am

    Re: Re: Balance Isn't A Mistake

    We're not talking about giving up "rights." We're talking about them not getting monopoly protectionism....So, no, no one is giving up anything. They're getting a bigger market. It really is that simple.

    Semantics aside, either your advocating doing away with copyright (which is not how I've read your various posts) or advocating that content creators, in this case musicians, voluntarily forgo exercising those rights to "free" the music. Either way, they are in a very real sense giving up those rights. That you say they'll get a bigger market does nothing to contradict that.

    As for the bigger market being theoretical, a lot depends on how good the band's music is, how much other promotion is being done, and generally to consumer's tastes. Giving away the music certainly can increase the market for an artist, but there's a lot more to it than that.

    No offense, but if that's true then you haven't looked very hard. We've shown bands of all sizes making a lot more money by utilizing these models....Radiohead did a lot better. NIN did a lot better. And smaller artists have done a lot better. Jill Sobule. Maria Schneider. Jonathan Coulton.

    You've shown a handful of artists have been making money, and most of that money is selling music, whether on disc or downloaded. I've not been able to find comparative figures for NIN sales, but the figures I'd like to see are the percentage of free downloads to paid downloads (and downloads to purchases of discs) and comparisons to past albums. That would determine whether the market has actually expanded.

    The problem is that you seem to only be looking at a tiny part of the model "are they doing ancillary stuff" and leaving out the fact that giving away the infinite good, and actively promoting that INCREASES the demand for the ancillary goods.

    No, the primary part of the model is that giving away the infinite good MAY increase the demand for the ancillary good, but there is a limit on how much the ancillary good sales can make up for revenue lost by giving away the infinite good. For the smaller artists you cite, giving away music may stimulate both concert sales growth and sold music sales growth...or not. Especially when it comes to concerts, there's a whole 'nother set of costs and risks that have to be taken into account.

    And then maybe you'll recognize how this works.

    I've read both of those older posts, and many others. The point is that you advocate that all digital music should be given away and revenue differences will be made up in an expanded market for ancillary goods. Maybe, but maybe not. The only rationale seems to be that infinite goods like music should be given away promotionally simply because the can be. You've repeatedly said that the "old" model is dying, but the reality is different. I'd say the old model has a cold, not cancer, and may easily recover quite nicely.

    One note on your post about Disney: I wasn't aware that Disney was giving away all Hanna Montana recordings. Sure they're masters at creating TV and Movie characters and "stars" an using the leverage of their cable and film empire to drive music sales, but I don't get how this fits into your "free the infinite good" meme.

    Odd. How is a model that has been proven throughout the history of modern economic development "highly theoretical." It's not. It's basic economics and it's been shown to work. Repeatedly.

    Again, your model works when you can more closely commoditize goods. But sales of digital music have not disappeared, nor are they likely to, no matter how much free music is given away. In specific relation to the entertainment industry--books, film, music--giving away your primary product isn't necessarily basic economics, nor particularly good business.

    No. Actually, it doesn't. Because rather than maximizing the profit potential, it purposely limits it, and sets up an antagonistic structure, rather than one where the incentives are aligned. In other words, the model I'm discussing is win-win. The model you discuss is lose-lose.

    Your model doesn't necessarily maximize profit potential, even if it could guarantee a vastly increased market. Nor does the old model necessarily limit it (since a lot of profit potential in this arena relates more to quality, taste, and audience reception). Most consumers don't see an antagonistic structure.

    Your model is certainly a win for those who don't want to pay for music generally and maybe a win for content creators. The current model may be lose for those who don't want to pay or who view any restrictions on secondary distribution of music as an affront to their "rights" but more accurately it's a mostlywin-mostlywin.

    My point here Mike is that your model may work in some instances and be the best business practice, but it's not the one-size-fits-all model that you claim it is. Whether you want to call it an "artificial monopoly" or not, content creators have rights (as do content consumers, in spite of what some overzealous and litigious companies might want to claim); and whether or not you are prepared to recognize it, you are inherently calling on the "balance" between those rights to fall 100% on the side of the consumer, whether by eliminating the "monopoly" by rescinding copyright law or by content creators all "voluntarily" forgoing the exercise of those rights.

    Balance of rights may not be preferred at the extreme edges of the debate, but labeling any attempt to try to find that balance a "mistake" is missing the forest for the trees.

     

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  5.  
    identicon
    LostSailor, Oct 20th, 2008 @ 10:39am

    Re: Maybe It's Not Just the Model that's Broken

    there's a lot of discussion about making up revenue lost by releasing some of the rights over artists' music. But does that revenue really need to be made-up?

    The discussion was not just releasing "some" of the copyright protection to an artists' music, but generally releasing all the rights.

    Actually, it would be up to the artist (or recording company if the artist has a contract with one) to decide whether lost revenue would need to be "made up."

    My point is that if you want to convince the recording industry (and that's the real point here) to release all their music freely and without reuse restriction, they're going to have to be convinced that the revenue they would lose by doing so would be returned by increase in different activity.

    Mike's point is that the free release of music will nearly always result in a wider market for the music and the artist, allowing for increased market for specialty CDs, concerts, merchandise, and other marketable products or services. The "make up" (and hopefully increase) in revenue will come from those activities.

    It's not a matter of whether a record label or artist "deserves" more than a teacher or construction worker, but a plain business case. Record companies are in business to earn as much money as possible, just like most other businesses. You're not going to get them to change their business plan without hard numbers. Simply having a different model isn't enough.

     

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  6.  
    identicon
    Androgyn, Apr 3rd, 2009 @ 3:41pm

    my opinion

    I think "giving away free music" is alredy happening in the old busines mondel too: The plays in RADIO is free music distribution. Actually peolple can hear the tracks for free from it..for many times. So it build the musicians brand, and it pumps up the merchandise sale already. There is no "wider market" in my opinion. Every teen listen raido,and watch music tv. The guy who heard britney's song for atleas 30 times,and he still would not want to pay for her song ,just wants to download it, doesnt gonna pay for merchandise eighter.

     

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