How 'Free' Economics Are Going To Impact The Video Game Market

from the it's-coming... dept

Reader Ben points us to a well done article over at GameIndustry.biz warning the industry to start understanding how "free" plays a role in digital economics. It does a great job summarizing the key points associated with "free" infinite goods, such as the fact that it really has little to do with "piracy," though the "piracy" may be an early indicator of where the market is heading:
The notion of Free isn't new in economics, of course. It's well understood that as a commodity becomes less rare, its value tends towards zero. When something becomes sufficiently commonplace, you can no longer charge a notable price for it - unless you artificially create a market based around image and prestige (bottled water) or find a way to add value (pure oxygen canisters, flavoured water).

You can also create artificial scarcity to keep prices high, although there are obvious moral problems with doing that with anything other than luxury items - and markets, like networks, interpret this kind of interference as damage, and usually find a route around it.
The whole thing is worth reading, and does a good job laying out the issues. It doesn't, however, suggest much of a solution -- though, there are plenty of potential solutions for the video gaming industry, focusing on finding scarcities to provide that can't be had for free. So, for example, giving away the core game for free, but charging to play multiplayer versions on an authorized server. As many are finding, that can be quite a nice business. Unfortunately, it does seem like some think the answer is to sell virtual goods within a game, but that has the potential to face the same eventual issue (the goods are really infinite, and will face the same deflationary economic pressure). But the fact is there are always additional scarcities created, which will present opportunities.

Figuring out just how to break out those scarcities from the infinite goods was the point of that economic series I wrote up a few years ago, which we're now offering nicely packaged as the Approaching Infinity book (as a part of our CwF+RtB experiment) -- which actually helps demonstrate the point. You can read most of the basic content for free online in the series, or you can buy the physical (scarce) book in a nice readable package which has been updated and expanded with more material and edited to better flow as a book (and you get a t-shirt as well). You can always take infinite goods and find a scarcity... whether it's with blog posts or with video games. So, yes, free is important to understand, but equally as important is understanding how to use it to your advantage, rather than just worrying about how it may hurt your old business model.


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  1.  
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    Anonymous Coward, Jul 24th, 2009 @ 7:05pm

    "the goods are really infinite, and will face the same deflationary economic pressure"

    Not really true - strictly limited goal goods are the sort of things that make these economies float, and as wow and the farmers have shown, there is a huge market in the real world for these artifical world goods. So they aren't infinite enough, they aren't specifically deflationary, and in the right setting, they even have real world value.

    "authorized server multiplayer" is a decent business model, but most of these programs are easily hacked to run on private servers or in other manners, which means that the main potential income source is bypassed.

    It is much more likely that in the end, that the games won't be sold retail anymore, at least not as a complete package, and that some interaction with a central server to activate or operate the same will be required, even in a single player mode. There is potential that the game CD is nothing more than a valid serial number, when combined with the console ID put together to download the software for local use only.

    While "FREE!" is a wonderful concept the gaming world is a great place to look for companies that are looking to get past the issue of piracy and render it moot, so that the users end up paying a reasonable price for the software and the company can bank on sales.

     

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    Anonymous Coward, Jul 24th, 2009 @ 7:37pm

    Just try playing any Steam game without having Steam running and online.

     

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    Perry K (profile), Jul 24th, 2009 @ 8:16pm

    Free != no cost

    A good example of in games where this applies are so called "free to play" mmorpgs
    they all work on the concept of providing the game download/account registration for free and provide additional features/benefits in so called item shops/mall

     

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    Headbhang, Jul 24th, 2009 @ 8:37pm

    Tough

    While I normally fully agree with the general notion drummed on this site about the economics of free, particularly on music, I find that videogames, specifically of the complex single player ones, face the toughest challenge on this regard.

    Not every game concept is amenable to slapping a multiplayer component to it and relying on other peripheral, true scarcities might not be effective enough to fully fund those complex games which cost many, many man-hours to develop. I fear there might not be an alternative to those projects outside of slapping an official price to the "infinite" good and somehow getting people to pay.

     

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    Doctor Strange, Jul 25th, 2009 @ 12:33am

    Re: Tough

    Agreed. The question isn't whether you can find scarcities. Sure, you can find a few. You can even sell them. The real question is - how much scarcity can you expect to find, how much can you sell it for, and how long can you sustain this?

    Real scarcities are not always easy to find. As others have pointed out, multiplayer capability is not a real scarcity, it's a sort of artificial scarcity. The only reason it is scarce for some games is because the developer can hold server-only code in secret and prevent others from using it while making it difficult to reverse-engineer. This is a sort of "natural DRM." (Interestingly, few are opposed to this kind of DRM).

    If the code were published freely, and there were not ways to stop other people from using it (e.g., copyrights and other intellectual property laws), alternate servers would be set up quickly by people who only have to pay marginal costs for servers and bandwidth (which are low and can be acquired easily from any number of cloud computing vendors), and not all of the development costs of the games. I guarantee that any clever group could run World of Warcraft servers just as well as Blizzard for far less than $15 per person per month if they got the code for free.

    We have already seen this with, for example, Ultima Online. Additionally, when the Stardock piracy issue came up a couple months ago, the multiplayer-on-official-servers "scarcity" was also brought up as a potential business model - but of course clever pirates set up Hamachi, GameRanger, and other technologies to allow them to have multiplayer without paying anything for the game at all.

    The idea that books and T-shirts are "scarcities" also raises questions in my mind. Print-on-demand costs are dropping, and anyone can have a T-shirt made up for a fixed cost on CafePress with a few clicks of the mouse. At the point when these options allow others to sell these goods more cheaply than their authors/designers can (who have to pad the price a little bit to recoup some of the development costs of their 'free' stuff), the only thing that would drive people to buy them from the more-expensive originator is some sort of good feeling, perhaps that buyers are "supporting the artist." Same with things like signed books - you're buying a sort of good feeling, rather than anything tangible. Otherwise you might be able to make a short-term profit through market inefficiency - if people don't know they can get the same thing cheaper elsewhere, they might buy at a higher price from you.

    I'm not saying you still can't build a business that makes some amount of money this way. However, this raises long-term questions about whether it will ultimately get riskier and less profitable to spend a lot in the "infinite" good (e.g., a video game itself), thus driving investment - and quality - in video games and other creative endeavors down.

     

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    Anonymous Coward, Jul 25th, 2009 @ 5:17am

    Re: Re: Tough

    What will we do when the marginal cost for everything approaches zero? Everyone has to pay for something.

    Remember in one game (I think Second Life) someone made a dupe machine. The game had very loose addon policies, but the guy basically undercut the world economy with the dupe machine.

    Fair enough. Rather than enjoying the benefits of having access to everything you want in game for free, people got angry, and the addon was bad. So even in a theoretical world, free doesn't always get it done.

    My point is that technology slowly drives down the cost of nearly everything. Prices should improve, and the standard of living should go up. That's been the experience in the west for the last 50-100 years.

     

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    Anonymous Coward, Jul 25th, 2009 @ 5:26am

    Re: Free != no cost

    Currently I'm enjoying Runes of Magic. Completely Free-to-Play, and you can do nearly everything for free that you pay to do. But you pay for it in time.

    If I want an equipment upgrade, you can do repeatable quests for 3 days, or you can pay 75-80 cents.

    Some people have already spent hundreds of dollars on the game. WoW gets $15/month from everyone, but RoM gets $100s/month from some. Everyone wins, well except for the guys who don't want to put in the time or money, but want to have a well-geared character.

     

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    Anonymous Coward, Jul 25th, 2009 @ 1:21pm

    In the end, the suggestion is that any game that either (a) can't be made into a restricted multi-player, or (b) has some sort of internal economy that can be milked for real money is pretty much a no go.

    Since there is no way to control piracy, companies need to stop making games that don't fit into the two categories above. Obviously the business model of just making a video game that gives tons of hours of joy to the user isn't enough to have them justify actually paying for it.

    Mike, don't you see this is the sort of spot where your "FREE!" economy stuff just falls to pieces?

     

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    duane (profile), Jul 25th, 2009 @ 2:12pm

    Re:

    It doesn't fall apart, it just means that the games you mention are the only ones developed by people looking to make money the way they know how to make it now. That's business.

    To be truthful it seems like that's where all the games are going now anyway. Sad for me the non-multi-player gamer, but they cancel all the damn TV shows I like too, so I'm used to it.

    However, at some point game companies will realize how tough the competition in the above-mentioned fields is getting and look at other options. They will conclude that if they are willing to accept lower profits they can have a real competitive edge over other companies (for a little while) and single player games will come back. Yay for me.

    Considering it further though, you don't seem to understand the concept completely. To a certain extent, a game isn't just a game any more. It can also be books based on the game, movies or cartoons based on the game, ancillary materials (guidebooks, extra levels, etc.) based on the game, the list goes on. What technology is bringing us is a future where everything is content and what the savvy businessperson realizes is that everything can be leveraged with or for something else. Profit potential is everywhere, you just have to look at it right.

     

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    Anonymous Coward, Jul 25th, 2009 @ 4:00pm

    So the problem with the whole freaknomics free business model is that it will break in time. Just like the .com bubble burst of the late 90s.

    Sure, 'give away your best content for free', that's fine so long as your making additional profit from having more users/readers/viewers/players. But when everyone is doing it the additional revenue will stop. Then good content will stop, more time spent on milking existing content, creators sit on ideas...

    Imagine with music industry, all major labels go away, all music is free but ultimately crap or at least, really, really niche. Then someone will come along with a major label style produced album ten years later, it will sound amazing in comparison and have wide appeal and it will make a ton of money. Then there will be a rush to do more of that.

    On video games in particular, this is just flat out stupid. Why? Because there are millions of free games on the net already, but when Halo: ODST comes out it will sell a ton, because it is a much higher quality experience and gamers will always pay extra for that. You do not have that shift in quality in other industries - movies are pretty much movies, music is music. It all has the same value and that value is now fast approaching free. Not so for games.

     

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    Mike Masnick (profile), Jul 25th, 2009 @ 4:16pm

    Re: Tough

    Not every game concept is amenable to slapping a multiplayer component to it and relying on other peripheral, true scarcities might not be effective enough to fully fund those complex games which cost many, many man-hours to develop. I fear there might not be an alternative to those projects outside of slapping an official price to the "infinite" good and somehow getting people to pay.

    There are ALWAYS scarcities that will pay for the fixed costs of developing the game. ALWAYS. It need not be multiplayer games (that was just one example). There will always be something, though it may depend on the game.

     

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    Anonymous Coward, Jul 25th, 2009 @ 8:01pm

    Re: Re: Tough

    Mike, would you care to explain where you would see these "scarcities" in a single player shoot'em up or things like, say, Wii Bowling?

    thanks.

     

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    Anonymous Coward, Jul 25th, 2009 @ 8:10pm

    Re:

    Ding!

    Actually,I have mentioned this before. Freakenomics, The Long Tail, Burn Rate, and now "FREE!" are all books that are looking at a fairly narrow time in business. They speak as if the moment in time will last forever, but alas, they don't.

    The Long Tail is a great example, while is some ways it continues to be true, it was most true only when there was a large pent up demand for back catalog material in new formats, such as TV show box sets or older movies. But as that back catalog gets depleted and the demand satiated, the end of the long tail gets smaller and less economically viable. Basing a business on the long tail alone, which might have been a good idea 5 years ago, is no longer as good as it can be.

    The "FREE!" business model is the same, it is dependant on some market conditions and the rapid spread of higher speed internet. Basic economics pretty much says you can't give away stuff indefinitely, and the models put forth so far to attempt to recoup the monies lost in the free generally aren't all that strong. The current economic downturn has, as an example, killed the advertising market, and lowered the values of aggregated eyeball sites. There are already some signs out there that music fans aren't digging the overpriced concert tickets, and the music scene is generally showing few new acts getting national / international attention.

    As I mention in another post here too, there is little chance that any valid eocnomic model can be found for single player video games. There is no multiplayer "pay for server" option, and many games don't lend themselves to selling t-shirts, miniputt games, or visiting Malibu Grand Prix. Without the ability to charge customers directly for a product they want, the entire "FREE!" economy pretty much tells huge segments of the video game business that they can no longer exist.

    It appears in the long run to be unsustainable.

     

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    James Stevens, Jul 25th, 2009 @ 9:19pm

    Games have the opportunity to do Free right

    Free hasn't entirely hit the games industry yet, as most gamers still buy their games off the shelves of brick and mortar stores or through online retailers. Digital distribution is still in its early stages (and Steam is leading the way, here IMO).

    The gaming industry has the opportunity to embrace FREE when it inevitably strikes, unlike the record labels and the film industry... if they embrace Free while the other industries continue to fight, the gaming industry will experience TONS more growth than they already have.

    Now if only the ESA would get the hell out of the way.

     

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    Anonymous Coward, Jul 26th, 2009 @ 12:21am

    Re:

    Only the farmers are really selling time, probably the scarcest good. Time you spend doing mindless repetitive tasks to aquire currency. Freeing you up to buy that flashy virtual gear sooner to show it off to your friends.

     

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    Anonymous Coward, Jul 26th, 2009 @ 12:52am

    Re: Games have the opportunity to do Free right

    James, nice generalities. But how can they "embrace free" when it means turning their business from selling video games to, what selling t-shirts? What's the point here?

    This is the point that Mike always avoids addressing - If videos games currently sell $X, what is going to replace that when they are "FREE!"? Can you even suggest a business model that can support the widespread giveaway of video games?

    Rarely does anyone seem to have an answer for this, except for a vague reference to "more effecient markets" (they are way more effecient when money isn't moving, for some reason). Be specific. What can the Nintendo do with Wii Bowling to make it work when the price tag is zero?

     

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    Mike Masnick (profile), Jul 26th, 2009 @ 3:04am

    Re: Re: Re: Tough

    Mike, would you care to explain where you would see these "scarcities" in a single player shoot'em up or things like, say, Wii Bowling?

    If you have a specific product in mind, please feel free to hire us for help figuring it out.

    But I can assure you that there are a *lot* of scarcities associated with both of those products.

     

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    Mike Masnick (profile), Jul 26th, 2009 @ 3:05am

    Re:

    In the end, the suggestion is that any game that either (a) can't be made into a restricted multi-player, or (b) has some sort of internal economy that can be milked for real money is pretty much a no go.

    There are always scarcities. Your inability to figure them out does not mean they don't exist. It just suggests that you shouldn't be working in that business.

     

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    Mike Masnick (profile), Jul 26th, 2009 @ 3:08am

    Re:

    So the problem with the whole freaknomics free business model is that it will break in time. Just like the .com bubble burst of the late 90s.

    Don't confuse a bubble with sound economics.

    Imagine with music industry, all major labels go away, all music is free but ultimately crap or at least, really, really niche. Then someone will come along with a major label style produced album ten years later, it will sound amazing in comparison and have wide appeal and it will make a ton of money. Then there will be a rush to do more of that.

    You have a lot of assumptions in there that simply aren't true. There is tremendous music being made today. To argue otherwise is fallacy (and silly).

    On video games in particular, this is just flat out stupid. Why? Because there are millions of free games on the net already, but when Halo: ODST comes out it will sell a ton, because it is a much higher quality experience and gamers will always pay extra for that. You do not have that shift in quality in other industries - movies are pretty much movies, music is music. It all has the same value and that value is now fast approaching free. Not so for games.

    Keep believing. You seem to want to blame me for explaining economics, but you shouldn't blame the messenger.

     

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  20.  
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    Anonymous Coward, Jul 26th, 2009 @ 6:56am

    Re: Re: Re: Re: Tough

    Nice weasel words there Mike. Congrats on avoiding answering the most important questions about FREE!

    (and no, I wouldn't pay your company $10,000 to get some first year MBAs and web posters to toss comments around, sorry)

     

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    Anonymous Coward, Jul 26th, 2009 @ 6:57am

    Re: Re:

    Your inability to point them out sort of suggests they are the vaporware of economics. Should we call this voodoo econonics, version 2? Trickle Up? ;)

     

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    Anonymous Coward, Jul 26th, 2009 @ 7:01am

    Re: Re:

    "Don't confuse a bubble with sound economics."

    Interesting, it's what a number economists said before the .com bubble blew up, mostly the ones that had a vested interesting in keeping the bubble pumping.

    "You have a lot of assumptions in there that simply aren't true. There is tremendous music being made today. To argue otherwise is fallacy (and silly)."

    It's not the point. If there is no clear system for music to become widely distributed and heard, it is all for not. OUtside of existing big name artists, there isn't any single artist getting signficant traction from your business models and the ones you push. It turns music down into a regional system, with few methods in place to bring new acts up to major league standards. Great music heard by few is still great music, but it is still only heard by few.

    I do have to ask you, how many t-shirts do you think people need?

     

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  23.  
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    Anonymous Coward, Jul 26th, 2009 @ 8:56am

    Practicing what you preach

    Nice to see you standing by your own model with the book sales. Nothing speaks for believing in a solution like using it yourself.

    I read Techdirt daily and everything I've learned about business supports what you're saying. I do tech support for small businesses (on the side) and I do lots of little, simple things for free and I do my best at them. Who do you think they call when they need something serious? Yup.

    I hope you get through to the upcoming generation of our business leaders!

     

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    Anonymous Coward, Jul 26th, 2009 @ 9:48am

    Re: Practicing what you preach

    "I do tech support for small businesses (on the side) and I do lots of little, simple things for free and I do my best at them. Who do you think they call when they need something serious? Yup."

    Yeah, but you don't do your tech support for free and hope they will buy your company t-shirts, which is what Mike suggests to everyone else. Don't you get it? Give your core product away for free, and then find a business model to sell 1% of them something at a much higher price than normal to make it all back.

    It's basic stuff here!

     

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    Anonymous Coward, Jul 26th, 2009 @ 12:06pm

    In the very near future, breakthrough innovations in fabric technology will allow everyone to wear up to a dozen T-shirts at the same time without feeling encumbered or overheated.

    And I will, of course, be first in line to buy one of #23's "SMALL BUSINESS TECH SUPPORT" T-shirts! And if it comes in a number of pleasing colors, I might even buy TWO (ka-ching!) to layer up and wear with my Wii BOWLING T-shirt collection.

    All the naysayers in this thread are simply that. I hope you remember the pessimism you spewed here, five years from now when you're having yet another wing on your house installed to help store all your new T-shirts, signed paraphernalia, and limited-edition chotchkies...

    Oh! That reminds me #23, you might want to consider personally signing your "SMALL BUSINESS TECH SUPPORT" T-shirts and work with me here, what if, WHAT IF you had a little toy phone that repeats some your more entertaining tech-supporty quips? I mean, the possibilities are endless! I hope you're floured up cause you're about to be ROLLING THE DOUGH!

     

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    Anonymous Coward, Jul 26th, 2009 @ 12:32pm

    Re:

    Damn I wish I had written that, it's classic!

     

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    Mike Masnick (profile), Jul 26th, 2009 @ 1:47pm

    Re: Re: Re:

    If there is no clear system for music to become widely distributed and heard, it is all for not.

    There's this thing you might have heard of called "the internet." If not, you might want to check it out. It's actually made it much easier for music to become widely distributed and heard. I recognize that it's a relatively recent invention... but...

    OUtside of existing big name artists, there isn't any single artist getting signficant traction from your business models and the ones you push.

    Well, I guess since you haven't heard of the internet, it's no surprise you're not familiar with the number of bands that have been embracing these sorts of economics successfully. But, it is happening, all over the world. Your ignorance not withstanding.

    You're like the guy getting hit by a car while standing in the middle of the street who still insists that automobiles moving faster than horses are impossible.

     

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    Anonymous Coward, Jul 26th, 2009 @ 2:18pm

    Re: Re: Re: Re:

    "There's this thing you might have heard of called "the internet." If not, you might want to check it out. It's actually made it much easier for music to become widely distributed and heard. I recognize that it's a relatively recent invention... but."

    Haha. Nice, but irrelevant. "widely distributed and heard" is the key here. You address only the POTENTIAL for wide distribution, but not for being widely heard. If 1 million bands release 1 million songs, it is unlikely that any of them will reach a critical mass that would allow them to move ahead. Instead, you have 1 million bands each known by a handful of people spread over a huge geographic area, making it all but impossible to user your concept of scarcities to make money.

    If a band only gets a few fans in each city, there is no way to tour into the city and sell tickets and t-shirts. So they are stuck, and you expect them to give the music away too. Hmmm.

    "Well, I guess since you haven't heard of the internet, it's no surprise you're not familiar with the number of bands that have been embracing these sorts of economics successfully. But, it is happening, all over the world. Your ignorance not withstanding."

    Most of the "bands" that are making it using these methods were made by the existing record business. Even Amanda Fucking Palmer (stupid naming) owes much of her popularity outside of Boston to the record label that distributed the Dresden Dolls (which in turn permitted her to get a record deal that she blew off). Even your beloved Corey Smith is just a product of contest that got him a record deal that got him noticed by college radio. Without it, where would he be now?

    I think you make the mistake of confusing the distribution (web versus shiny plastic discs) with the other things that go on behind the scenes. One of the things that music industry does is narrow the selection down somewhat. Rather than(example numbers only) 1 million songs from 1 million bands, you get 10000 songs from 1000 bands. It's still a huge choice, a huge selection, but it helps to create enough traction for the rest of the process to follow. Without that narrowing process, without the offering of options, there is little chance that anyone can get enough exposure to break through.

    Internet radio? They have the same problem all other radio has: Not enough time to expose the million songs. You can change the delivery method all you like, but you cannot change time. Each song takes 3 - 5 minutes to listen to. Most people don't devote hours a day to music, and certainly not that much time to unknown music. So how does band A end up ahead of band B in people's minds? It's almost impossible for it to happen.

    I read a study a few years back about selections in food stores. If too many options are offered in any one product line, the public often chooses none of them, they are too confused, or they choose only the "classic" choice and ignore the other options. It's one of the reasons that the captaining system is used in most stores, because they look for the most effective display setup for selling the products, and they control the number of new entries (and removals of non-sellers) from the shelves. In the end, is more effecient than an entire aisle of just salad dressing.

    "You're like the guy getting hit by a car while standing in the middle of the street who still insists that automobiles moving faster than horses are impossible."

    It has nothing to do with speed, again, time is a factor only that the public has only so much ear time. You are looking at distribution as the only issue, when it is only one of many things out there. So your example is meaningless, because it isn't about how fast the product moves, but how much product the end user can handle. You don't drink out of a firehose, so all the extra waterpressure (internet distribution) isn't going to help.

     

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  29.  
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    Peyote Short, Jul 26th, 2009 @ 2:18pm

    Re: Re: Re: Tough

    Some aspects of Second Life products can be duplicated. If you have the technical savvy, you can save yourself three or four US dollars and copy a skin that an artist created with a few dozen man-hours.

    However, if you try to market that skin as your own creation, selling it, you find out what the phrase, "small world" really means. You'll be noticed, ostracized and probably banned, losing all the assets you did pay for.

    Nobody in Second Life gets rich selling stolen goods. Just like real life, name recognition, branding and reputation are where the profit comes from.

    In virtual worlds like Second Life, everything is artificial, including scarcity. It's a world where geeks can sell code like gumballs out of machines and, with smart promotion, make significant real life money. There are $millionaires from Second Life and they did not get there from petty theft.

    Ultimately, the whole (virtual) world is richer for a thriving economy. Artists and scripters work together to create a rich, diverse selection of intellectual property available for a few dollars per unit and sometimes for free if it serves promotion.

    I like the idea of open source virtual worlds. But there's a lot of work to creating depth to those worlds and I suspect economic incentive works the same there as in real life. Money is the sincerest form of flattery and artists really like to be flattered.

     

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    Anonymous Coward, Jul 26th, 2009 @ 2:51pm

    "You're like the guy getting hit by a car while standing in the middle of the street who still insists that automobiles moving faster than horses are impossible."

    Whereas Mike is like the guy getting hit by a car while DUCKING in the middle of the busy street who still insists that cars are not actually driving upon four rounded pieces of rubber anymore but have rather increasingly taken to flying.

    He's based this belief on having seen a few cars go modestly airborne in racing footage and numerous action movies(made possible by those four rounded pieces of rubber but never mind that...)and assumed that if it can go up, it will continue to go up and in fact, never go down in a burning, fiery mess of misappropriated idealism.

    In Mike's world, Thelma and Louise would have a sequel.

     

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

  31.  
    identicon
    Anonymous Coward, Jul 26th, 2009 @ 3:43pm

    Re:

    Another winner. I wish I was writing this stuff, it's great!

     

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

  32.  
    icon
    Mike Masnick (profile), Jul 26th, 2009 @ 7:50pm

    Re: Re: Re: Re: Re:

    Haha. Nice, but irrelevant. "widely distributed and heard" is the key here. You address only the POTENTIAL for wide distribution, but not for being widely heard. If 1 million bands release 1 million songs, it is unlikely that any of them will reach a critical mass that would allow them to move ahead. Instead, you have 1 million bands each known by a handful of people spread over a huge geographic area, making it all but impossible to user your concept of scarcities to make money.

    I really don't know what you're talking about. Do you really think that no up-and-coming bands have become famous through new marketing methods? Apparently you've never heard of the Arctic Monkeys. Or Arcade Fire. Or one of tons of bands who became famous via the internet.

    If a band only gets a few fans in each city, there is no way to tour into the city and sell tickets and t-shirts. So they are stuck, and you expect them to give the music away too. Hmmm.

    Except that's not what happens. We've seen plenty of acts come from nowhere to build up a big enough following in enough different cities for touring. Jonathon Coulton is a perfect example of that, as is Corey Smith.

    Most of the "bands" that are making it using these methods were made by the existing record business. Even Amanda Fucking Palmer (stupid naming) owes much of her popularity outside of Boston to the record label that distributed the Dresden Dolls (which in turn permitted her to get a record deal that she blew off). Even your beloved Corey Smith is just a product of contest that got him a record deal that got him noticed by college radio. Without it, where would he be now?

    I'm not sure what you mean. I have nothing against record labels being a part of the business. Again, you keep insisting I have said something I have not.

    I think you make the mistake of confusing the distribution (web versus shiny plastic discs) with the other things that go on behind the scenes. One of the things that music industry does is narrow the selection down somewhat.

    Indeed. And things like Hype Machine and Pandora do a great job of that today. As does traditional radio. None of that has gone away. So I'm not quite sure what your issue is. I never said that record labels go away. You again are insisting I've said something I have not.

    Without that narrowing process, without the offering of options, there is little chance that anyone can get enough exposure to break through.

    Um, except that it has happened. It's the same way that any thing becomes popular. With enough promotion combined w/word of mouth some things break through. Who said that was going to change?

    It has nothing to do with speed, again, time is a factor only that the public has only so much ear time. You are looking at distribution as the only issue, when it is only one of many things out there. So your example is meaningless, because it isn't about how fast the product moves, but how much product the end user can handle. You don't drink out of a firehose, so all the extra waterpressure (internet distribution) isn't going to help.

    You've confused your analogies. Yes, it's true that no one is listening to all the music out there, but things still breakthrough and are becoming popular. Why wouldn't they? People expect a shared culture and they find it. What makes you think that you have to sell music the old way for that to happen?

     

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

  33.  
    identicon
    Anonymous Coward, Jul 26th, 2009 @ 8:43pm

    Re: Re: Re: Re: Re: Re:

    Mike, you keep going on and on, and you keep coming back to the same tired examples.

    Corey Smith: Won a song writing / performing / best band thing, got an album that got picked up by college radio, and that is how he made his bones. Without that album (released by a major label) he would never have been heard by college radio and never become the hero of the drunken frat boys.

    Arctic Monkeys: Sort of any easy one here. They didn't do a thing, their fans traded their music. They got exposure on BBC radio all across the UK. They didn't really get known until they signed with Domino records, EMI, and Epic - that brought them in huge amounts of money and allowed the band to break outside of the UK, where they had never been heard of before. Guess what: No record deal, they would still be buried in Sheffield playing pubs. Notice the key - RECORD DEAL.

    New marketing methods are just like old marketing methods. Without the key moment (for both Corey Smith and the Arctic Monkeys) of signing a deal to get an actual record released by a label, they were just local heros at best.

    It's what makes your whole discussion about music so annoying to read, because you just draw a line through everything after "record a song" and leave only "connect with fans and making money" at the bottom of the list. You miss all the pieces in the middle which are the difference between playing pubs on weekends, and actually being well known and widely heard.

    "Indeed. And things like Hype Machine and Pandora do a great job of that today. As does traditional radio. None of that has gone away. So I'm not quite sure what your issue is. I never said that record labels go away. You again are insisting I've said something I have not."

    You don't say for the records labels to go away? WHo are you kidding. You say it pretty much directly, you no longer want them to have any income sources (no record sales, no license fees, no nothing). Do you expect record labels to run as a charity?

    Traditional Radio is entirely dependant on record labels and the process to help them have an orderly music marketplace to work in. Without them, particularly on a national level, you end up with a mish mash, pockets of this and that, with few if any acts able to expand in any reasonable time to cover a country, region, or the world.

    "You've confused your analogies. Yes, it's true that no one is listening to all the music out there, but things still breakthrough and are becoming popular. Why wouldn't they? People expect a shared culture and they find it. What makes you think that you have to sell music the old way for that to happen?"

    It comes back to the question of critical mass. If a band can get 1% of it's fans to a concert in any city/ town / whatever, and they need to sell 250 tickets to make it worth touring, then they need 25,000 fans in each of probably 200 areas to be able to tour at a reason level each year. 5 million fans. If you don't have consistant radio exposure, if you don't have consistant media exposure, it's hard to achieve that. In a world where music is given away as a loss leader advertising method, the need to tour is even greater than it is now.

    People do expect a shared culture, but like most anything the internet touches, it ends up as an endless number of shallow pools, not a smaller collection of deep ones. Bands (artists) need a relative decent number of fans in enough places to make it worth doing, or it doesn't work. If a band is on R&B radio in Dallas, but not in Fort Worth, if they are in New Jersey but not in New York, in Miami but not Lauderdale, it's hard to get enough critical mass to make it work. So a collection of 500 or 1000 online fans spread all over the world isn't enough to make anything go. It's nice, it's good for the ego, but there is no money in it.

    What you are missing in all of this is the "and then something happens" moment, brought to you most often by a record label that invests time and money to get an artist the exposure they need to make that next level, where they can have the fans to connect to.

     

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

  34.  
    icon
    Mike Masnick (profile), Jul 26th, 2009 @ 10:47pm

    Re: Re: Re: Re: Re: Re: Re:

    You don't say for the records labels to go away? WHo are you kidding. You say it pretty much directly, you no longer want them to have any income sources (no record sales, no license fees, no nothing). Do you expect record labels to run as a charity?

    Again with the reading comprehension. No, I don't think the record labels should go away and I've said so directly many, many times. I still think there's a huge place for them.

    But it's not in selling music. I never said they shouldn't have any income source. Which part of the $$$$ part of the business model we explained do you not understand? You can't honestly be that stupid. All of the examples we've given show artists making a LOT more money than they would have otherwise. A record label can clearly help with everything they need to make that money. I'm all for record labels and have said so repeatedly. Hell, I even explained why I hope the RIAA can succeed once -- but I meant in coming to their senses and learning to help artists these days, rather than what they've been doing.

    Traditional Radio is entirely dependant on record labels and the process to help them have an orderly music marketplace to work in. Without them, particularly on a national level, you end up with a mish mash, pockets of this and that, with few if any acts able to expand in any reasonable time to cover a country, region, or the world.

    Okay, fine. So tell me this... considering both radio stations and record labels have been losing a ton of money lately... what should they do? What do you think the answer is?

    You keep insisting that my answer is wrong, but your answer seems to be "I really really wish the old way was still around."

    That's pretty silly, of course. If you talk to any musician who lived through the "old way" you'll here what an awful experience it was. But those coming up today, who don't rely on radio play for success are finding a much more enjoyable experience (oh, and did I mention they're making more money?).

    You do know that most kids today don't listen to the radio? You do know that YouTube has become one of the most popular ways to "break" a band these days, right? But according to you that's impossible, because it's only record labels and radio. You're living in a different century. Time to catch up. I realize you have nothing to do with the recording industry, but I spend a lot of time dealing with folks in all parts of the recording industry. Radio's dead. Get over it and wake up to what's happening.

    It comes back to the question of critical mass. If a band can get 1% of it's fans to a concert in any city/ town / whatever, and they need to sell 250 tickets to make it worth touring, then they need 25,000 fans in each of probably 200 areas to be able to tour at a reason level each year. 5 million fans. If you don't have consistant radio exposure, if you don't have consistant media exposure, it's hard to achieve that. In a world where music is given away as a loss leader advertising method, the need to tour is even greater than it is now.

    Exactly. When you're giving away your music, it's much easier to build up that scale, because you've taken the transaction friction out of the process. It works great.

    People do expect a shared culture, but like most anything the internet touches, it ends up as an endless number of shallow pools, not a smaller collection of deep ones. Bands (artists) need a relative decent number of fans in enough places to make it worth doing, or it doesn't work. If a band is on R&B radio in Dallas, but not in Fort Worth, if they are in New Jersey but not in New York, in Miami but not Lauderdale, it's hard to get enough critical mass to make it work. So a collection of 500 or 1000 online fans spread all over the world isn't enough to make anything go. It's nice, it's good for the ego, but there is no money in it.

    Ok, so please explain all the artist we've talked about that *have* gone national? It doesn't matter if they eventually signed with a record label. That makes sense for some of them. You claimed that no band could get enough attention without a record label, and that's obviously untrue.

    What you are missing in all of this is the "and then something happens" moment, brought to you most often by a record label that invests time and money to get an artist the exposure they need to make that next level, where they can have the fans to connect to.

    Yes, a record label can help. I don't see why you keep thinking I'm against record labels. I'm not. I'm against record labels doing STUPID THINGS that do more harm than good.

     

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

  35.  
    identicon
    Sos, Jul 27th, 2009 @ 12:26am

    Value of multiplayer

    Mike quote:
    So, for example, giving away the core game for free, but charging to play multiplayer versions on an authorized server.

    10 years ago if a game came with multiplayer capability it was a highly values addition. Today the general consensus among game reviewers is that a game is less valuable without the multiplayer component. In fact today multiplayer (online) is generally expected from a big release game. This leads back to the original article.
    When something becomes sufficiently commonplace, you can no longer charge a notable price for it

    A better example might be releasing the game for free but providing character and game info storage or premium servers for faster gameplay and other game expansions via service or subscription.

     

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

  36.  
    icon
    Marc D. (profile), Jul 27th, 2009 @ 8:06am

    Games

    I play games quite a bit, and I can list a ton of things I would pay money for. If it were my company, i would try to get my game out there, free if i had too, and get the people playing. I would then load it down with extras you could buy. Custom buildings, special trade routes, better storage capacity, better weapons, tips from the game designers.. etc... Even if you "had" to charge a shelf price for it, you could throw in several different price points. Ten bucks gets you basic stuff, Seventy bucks gets you every bell and whistle possible. Then you could have several steps between. Sitting on the old model of slapping fifty dollars on a title, and doing little else, is tired. I think you would leave many of your customers underserved. A good example is the people spending their own time modding a game. Don't go after them, support them. Steam has done a "fairly good job" of that, and probably made quite a bit of money from it.

     

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  37.  
    identicon
    Anonymous Coward, Aug 12th, 2009 @ 4:00pm

    The biggest scarcity I can think of that is made more valuble by computer games is hardware. I know i've bought a 3D graphics card specifically to play games. I even got a free game with it.

     

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


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